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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2019

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 001-10253

TCF Financial Corporation

(Exact name of registrant as specified in its charter)



Delaware	41-1591444
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

200 Lake Street East

Wayzata, Minnesota 55391-1693

(Address and Zip Code of principal executive offices)

(952) 745-2760

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (par value $.01 per share)	TCF	New York Stock Exchange
Depositary shares, each representing a 1/1000th interest in a share of the 5.70% Series C Non-Cumulative Perpetual Preferred Stock	TCF-PD	New York Stock Exchange

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 ☑ 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 ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	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 ☑

As of July 30, 2019, there were 161,235,844 shares outstanding of the registrant's common stock, par value $.01 per share, its only outstanding class of common stock.

Table of Contents

TABLE OF CONTENTS



Description	Page

Part I - Financial Information

Item 1. Financial Statements.

Consolidated Statements of Financial Condition at June 30, 2019 (Unaudited) and December 31, 2018	1

Consolidated Statements of Income for the Second Quarter and Six Months Ended June 30, 2019 and 2018 (Unaudited)	2

Consolidated Statements of Comprehensive Income for the Second Quarter and Six Months Ended June 30, 2019 and 2018 (Unaudited)	3

Consolidated Statements of Equity for the Second Quarter and Six Months Ended June 30, 2019 and 2018 (Unaudited)	4

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited)	6

Notes to Consolidated Financial Statements (Unaudited)	7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	47

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	70

Item 4. Controls and Procedures.	71

Part II - Other Information

Items 1 - 6.	72

Signatures	75

Table of Contents

Part I - Financial Information

Item 1. Financial Statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition



(Dollars in thousands, except per share data)	At June 30, 2019			At December 31, 2018
	(Unaudited)
Assets:
Cash and due from banks	$	555,271		$	587,057
Investments	105,659			91,654
Debt securities held to maturity	144,919			148,852
Debt securities available for sale	3,109,803			2,470,065
Loans and leases held for sale	74,410			90,664
Loans and leases:
Consumer real estate:
First mortgage lien	2,472,066			2,444,380
Junior lien	2,821,099			2,965,960
Total consumer real estate	5,293,165			5,410,340
Commercial	4,185,811			3,851,303
Leasing and equipment finance	4,826,785			4,699,740
Inventory finance	3,404,214			3,107,356
Auto finance	1,456,138			1,982,277
Other	18,341			21,295
Total loans and leases	19,184,454			19,072,311
Allowance for loan and lease losses	(146,503		)	(157,446		)
Net loans and leases	19,037,951			18,914,865
Premises and equipment, net	432,751			427,534
Goodwill, net	154,757			154,757
Other assets	1,011,309			814,164
Total assets	$	24,626,830		$	23,699,612
Liabilities and Equity:
Deposits:
Checking	$	6,544,470		$	6,381,327
Savings	6,519,587			6,122,257
Money market	1,443,003			1,609,422
Certificates of deposit	4,605,327			4,790,680
Total deposits	19,112,387			18,903,686
Borrowings:
Short-term borrowings	350,764			—
Long-term borrowings	1,617,531			1,449,472
Total borrowings	1,968,295			1,449,472
Accrued expenses and other liabilities	835,630			790,194
Total liabilities	21,916,312			21,143,352
Equity:
Preferred stock, par value $0.01 per share, 30,000,000 shares authorized;
7,000 shares issued	169,302			169,302
Common stock, par value $0.01 per share, 280,000,000 shares authorized;
173,083,763 and 173,584,846 shares issued	1,731			1,736
Additional paid-in capital	868,001			885,089
Retained earnings, subject to certain restrictions	1,874,308			1,766,994
Accumulated other comprehensive income (loss)	37,334			(33,138		)
Treasury stock at cost, 10,313,700 and 9,661,619 shares and other	(265,016		)	(252,182		)
Total TCF Financial Corporation stockholders' equity	2,685,660			2,537,801
Non-controlling interest in subsidiaries	24,858			18,459
Total equity	2,710,518			2,556,260
Total liabilities and equity	$	24,626,830		$	23,699,612

See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)



	Quarter Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2019		2018		2019		2018
Interest income:
Loans and leases	$	279,447	$	269,280	$	559,041	$	529,655
Debt securities available for sale	22,325		12,516		41,140		22,639
Debt securities held to maturity	924		998		1,459		2,017
Loans held for sale and other	4,247		3,529		8,548		7,274
Total interest income	306,943		286,323		610,188		561,585
Interest expense:
Deposits	40,542		23,953		78,022		46,463
Borrowings	16,077		11,571		30,935		21,124
Total interest expense	56,619		35,524		108,957		67,587
Net interest income	250,324		250,799		501,231		493,998
Provision for credit losses	13,569		14,236		23,691		25,604
Net interest income after provision for credit losses	236,755		236,563		477,540		468,394
Non-interest income:
Leasing and equipment finance	42,126		42,904		83,265		84,751
Fees and service charges	32,477		32,670		63,801		63,421
Card revenue	15,632		14,962		29,875		28,721
ATM revenue	4,863		4,933		9,303		9,583
Gains on sales of loans, net	10,828		7,192		18,800		16,315
Servicing fee income	4,523		7,484		9,633		15,779
Gains (losses) on debt securities, net	1,066		24		1,517		87
Other	1,936		3,934		4,283		7,650
Total non-interest income	113,451		114,103		220,477		226,307
Non-interest expense:
Compensation and employee benefits	114,369		120,575		235,926		244,415
Occupancy and equipment	41,828		40,711		83,565		81,225
Lease financing equipment depreciation	19,133		17,945		38,389		35,219
Foreclosed real estate and repossessed assets, net	2,448		3,857		7,078		8,773
Merger-related expenses	4,226		—		13,684		—
Other	54,845		88,951		111,282		148,387
Total non-interest expense	236,849		272,039		489,924		518,019
Income before income tax expense	113,357		78,627		208,093		176,682
Income tax expense	19,314		16,418		40,601		38,049
Income after income tax expense	94,043		62,209		167,492		138,633
Income attributable to non-controlling interest	3,616		3,460		6,571		6,123
Net income attributable to TCF Financial Corporation	90,427		58,749		160,921		132,510
Preferred stock dividends	2,494		2,494		4,987		6,600
Impact of preferred stock redemption	—		—		—		3,481
Net income available to common stockholders	$	87,933	$	56,255	$	155,934	$	122,429
Earnings per common share:
Basic	$	0.54	$	0.34	$	0.96	$	0.73
Diluted	0.54		0.34		0.96		0.73
Weighted-average common shares outstanding:
Basic	161,973,864		165,728,591		161,919,867		167,110,343
Diluted	162,305,154		166,857,640		162,364,168		168,464,546

See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)



	Quarter Ended June 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Net income attributable to TCF Financial Corporation	$	90,427		$	58,749		$	160,921		$	132,510
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on debt securities available for sale and interest-only strips	30,625			(4,806		)	67,993			(32,625		)
Net unrealized gains (losses) on net investment hedges	(2,179		)	3,779			(4,487		)	5,383
Foreign currency translation adjustment	3,415			(4,925		)	6,982			(7,035		)
Recognized postretirement prior service cost	(8		)	(8		)	(16		)	(17		)
Total other comprehensive income (loss), net of tax	31,853			(5,960		)	70,472			(34,294		)
Comprehensive income	$	122,280		$	52,789		$	231,393		$	98,216

See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity (Unaudited)

For the Quarter Ended June 30, 2019 and 2018



	TCF Financial Corporation
	Number of Shares Issued			Preferred Stock		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock and Other			Total			Non- controlling Interest			Total Equity
(Dollars in thousands)	Preferred	Common		Preferred Stock		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock and Other			Total			Non- controlling Interest			Total Equity
Balance, March 31, 2019	7,000	173,318,320		$	169,302	$	1,733		$	875,797		$	1,810,701		$	5,481	$	(246,621	)	$	2,616,393		$	29,452		$	2,645,845
Net income	—	—		—		—			—			90,427			—		—			90,427			3,616			94,043
Other comprehensive income (loss), net of tax	—	—		—		—			—			—			31,853		—			31,853			—			31,853
Net investment by (distribution to) non-controlling interest	—	—		—		—			—			—			—		—			—			(8,210		)	(8,210		)
Repurchases of 1,324,920 shares of common stock	—	—		—		—			—			—			—		(26,495		)	(26,495		)	—			(26,495		)
Dividends on 5.70% Series C Preferred Stock	—	—		—		—			—			(2,494		)	—		—			(2,494		)	—			(2,494		)
Dividends on common stock of $0.15 per common share	—	—		—		—			—			(24,326		)	—		—			(24,326		)	—			(24,326		)
Stock compensation plans, net of tax	—	(234,557	)	—		(2		)	(8,423		)	—			—		8,727			302			—			302
Change in shares held in trust for deferred compensation plans, at cost	—	—		—		—			627			—			—		(627		)	—			—			—
Balance, June 30, 2019	7,000	173,083,763		$	169,302	$	1,731		$	868,001		$	1,874,308		$	37,334	$	(265,016	)	$	2,685,660		$	24,858		$	2,710,518



Balance, March 31, 2018	7,000	172,472,035	$	169,302	$	1,725	$	878,096		$	1,618,041		$	(46,851	)	$	(97,800	)	$	2,522,513		$	28,437		$	2,550,950
Net income	—	—	—		—		—			58,749			—			—			58,749			3,460			62,209
Other comprehensive income (loss), net of tax	—	—	—		—		—			—			(5,960		)	—			(5,960		)	—			(5,960		)
Net investment by (distribution to) non-controlling interest	—	—	—		—		—			—			—			—			—			(8,251		)	(8,251		)
Repurchases of 2,780,835 shares of common stock	—	—	—		—		—			—			—			(68,213		)	(68,213		)	—			(68,213		)
Dividends on 5.70% Series C Preferred Stock	—	—	—		—		—			(2,494		)	—			—			(2,494		)	—			(2,494		)
Dividends on common stock of $0.15 per common share	—	—	—		—		—			(24,847		)	—			—			(24,847		)	—			(24,847		)
Common stock warrants exercised	—	969,565	—		10		(10		)	—			—			—			—			—			—
Stock compensation plans, net of tax	—	80,407	—		—		1,184			—			—			—			1,184			—			1,184
Change in shares held in trust for deferred compensation plans, at cost	—	—	—		—		(1,906		)	—			—			1,906			—			—			—
Balance, June 30, 2018	7,000	173,522,007	$	169,302	$	1,735	$	877,364		$	1,649,449		$	(52,811	)	$	(164,107	)	$	2,480,932		$	23,646		$	2,504,578

See accompanying notes to consolidated financial statements.

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity (Unaudited)

For the Six Months Ended June 30, 2019 and 2018



	TCF Financial Corporation
	Number of Shares Issued				Preferred Stock			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock and Other			Total			Non- controlling Interest			Total Equity
(Dollars in thousands)	Preferred		Common
Balance, December 31, 2018	7,000		173,584,846		$	169,302		$	1,736		$	885,089		$	1,766,994		$	(33,138	)	$	(252,182	)	$	2,537,801		$	18,459		$	2,556,260
Net income	—		—		—			—			—			160,921			—			—			160,921			6,571			167,492
Other comprehensive income (loss), net of tax	—		—		—			—			—			—			70,472			—			70,472			—			70,472
Net investment by (distribution to) non-controlling interest	—		—		—			—			—			—			—			—			—			(172		)	(172		)
Repurchases of 1,324,920 shares of common stock	—		—		—			—			—			—			—			(26,495		)	(26,495		)	—			(26,495		)
Dividends on 5.70% Series C Preferred Stock	—		—		—			—			—			(4,987		)	—			—			(4,987		)	—			(4,987		)
Dividends on common stock of $0.30 per common share	—		—		—			—			—			(48,620		)	—			—			(48,620		)	—			(48,620		)
Stock compensation plans, net of tax	—		(501,083	)	—			(5		)	(18,945		)	—			—			15,518			(3,432		)	—			(3,432		)
Change in shares held in trust for deferred compensation plans, at cost	—		—		—			—			1,857			—			—			(1,857		)	—			—			—
Balance, June 30, 2019	7,000		173,083,763		$	169,302		$	1,731		$	868,001		$	1,874,308		$	37,334		$	(265,016	)	$	2,685,660		$	24,858		$	2,710,518

Balance, December 31, 2017	4,007,000		172,158,449		$	265,821		$	1,722		$	877,217		$	1,577,311		$	(18,517	)	$	(40,797	)	$	2,662,757		$	17,827		$	2,680,584
Change in accounting principle	—		—		—			—			—			(116		)	—			—			(116		)	—			(116		)
Balance, January 1, 2018	4,007,000		172,158,449		265,821			1,722			877,217			1,577,195			(18,517		)	(40,797		)	2,662,641			17,827			2,680,468
Net income	—		—		—			—			—			132,510			—			—			132,510			6,123			138,633
Other comprehensive income (loss), net of tax	—		—		—			—			—			—			(34,294		)	—			(34,294		)	—			(34,294		)
Net investment by (distribution to) non-controlling interest	—		—		—			—			—			—			—			—			—			(304		)	(304		)
Redemption of Series B Preferred Stock	(4,000,000	)	—		(96,519		)	—			—			(3,481		)	—			—			(100,000		)	—			(100,000		)
Repurchases of 5,348,006 shares of common stock	—		—		—			—			—			—			—			(125,886		)	(125,886		)	—			(125,886		)
Dividends on 6.45% Series B Preferred Stock	—		—		—			—			—			(1,613		)	—			—			(1,613		)	—			(1,613		)
Dividends on 5.70% Series C Preferred Stock	—		—		—			—			—			(4,987		)	—			—			(4,987		)	—			(4,987		)
Dividends on common stock of $0.30 per common share	—		—		—			—			—			(50,175		)	—			—			(50,175		)	—			(50,175		)
Common stock warrants exercised	—		970,761		—			10			(10		)	—			—			—			—			—			—
Common shares purchased by TCF employee benefit plans	—		34,627		—			—			715			—			—			—			715			—			715
Stock compensation plans, net of tax	—		358,170		—			3			2,018			—			—			—			2,021			—			2,021
Change in shares held in trust for deferred compensation plans, at cost	—		—		—			—			(2,576		)	—			—			2,576			—			—			—
Balance, June 30, 2018	7,000		173,522,007		$	169,302		$	1,735		$	877,364		$	1,649,449		$	(52,811	)	$	(164,107	)	$	2,480,932		$	23,646		$	2,504,578

See accompanying notes to consolidated financial statements.

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended June 30,
(In thousands)	2019			2018
Cash flows from operating activities:
Net income	$	167,492		$	138,633
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	23,691			25,604
Depreciation and amortization	114,529			110,235
Provision (benefit) for deferred income taxes	28,693			19,958
Proceeds from sales of loans and leases held for sale	178,802			157,088
Originations of loans and leases held for sale, net of repayments	(185,848		)	(168,792		)
Gains on sales of assets, net	(34,648		)	(18,589		)
Net change in other assets and accrued expenses and other liabilities	(56,517		)	21,328
Other, net	(23,289		)	(22,102		)
Net cash provided by (used in) operating activities	212,905			263,363
Cash flows from investing activities:
Proceeds from sales of debt securities available for sale	408,230			—
Proceeds from maturities of and principal collected on debt securities	149,598			77,383
Purchases of debt securities	(1,147,642		)	(650,051		)
Redemption of Federal Home Loan Bank stock	68,000			126,001
Purchases of Federal Home Loan Bank stock	(82,000		)	(139,000		)
Proceeds from sales of loans and leases	414,974			370,934
Loan and lease originations and purchases, net of principal collected on loans and leases	(556,311		)	(98,923		)
Proceeds from sales of assets	49,996			20,913
Purchases of premises and equipment and lease equipment	(68,284		)	(78,592		)
Other, net	3,034			10,317
Net cash provided by (used in) investing activities	(760,405		)	(361,018		)
Cash flows from financing activities:
Net change in deposits	230,161			30,204
Net change in short-term borrowings	350,765			911
Proceeds from long-term borrowings	1,737,159			5,015,317
Payments on long-term borrowings	(1,724,630		)	(4,705,436		)
Payments on liabilities related to acquisition and portfolio purchase	(1,000		)	—
Redemption of Series B preferred stock	—			(100,000		)
Repurchases of common stock	(22,962		)	(125,886		)
Common shares sold to TCF employee benefit plans	—			715
Dividends paid on preferred stock	(4,987		)	(6,600		)
Dividends paid on common stock	(48,620		)	(50,175		)
Exercise of stock options	—			(997		)
Net investment by (distribution to) non-controlling interest	(172		)	(304		)
Net cash provided by (used in) financing activities	515,714			57,749
Net change in cash and due from banks	(31,786		)	(39,906		)
Cash and due from banks at beginning of period	587,057			621,782
Cash and due from banks at end of period	$	555,271		$	581,876
Supplemental disclosures of cash flow information and non-cash investing and financing activities:
Cash paid (received) for:
Interest on deposits and borrowings	$	103,413		$	64,294
Income taxes, net	7,374			(22,439		)
Transfer of loans and leases to other assets	48,025			50,078
Transfer of loans and leases from held for investment to held for sale, net	375,084			514,273
Operating lease right-of-use assets arising from obtaining operating lease liabilities	94,127			—
Pricing of subordinated bank notes due in 2029	148,555			—

See accompanying notes to consolidated financial statements.

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with GAAP. In the opinion of management, the accompanying unaudited consolidated financial statements contain all the significant adjustments, consisting of normal recurring items, considered necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Company's most recent Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations at and for the year ended December 31, 2018.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

Note 2. Proposed Merger with Chemical Financial Corporation

On January 27, 2019, TCF entered into an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Financial Corporation ("Chemical"), a financial holding company headquartered in Detroit, Michigan, with $22.5 billion in assets at June 30, 2019. Upon closing of the merger, Chemical will continue as the surviving company and will be renamed TCF Financial Corporation. All shares of its common and preferred stock will be listed on The NASDAQ Stock Market^®. All regulatory and shareholder approvals for the merger have been received by TCF and Chemical and the merger is expected to close on August 1, 2019, subject to the satisfaction of customary closing conditions. Under the terms of the Merger Agreement, 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.

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Note 3. Summary of Significant Accounting Policies

Accounting policies in effect at December 31, 2018 remain substantially unchanged and have been followed similarly as in previous periods except for the lease financing accounting policy. The accounting policy changes are the result of the adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) and related ASUs.

Leases TCF enters into lease contracts as both a lessor and a lessee. A contract, or part of a contract, is considered a lease if it conveys the right to obtain substantially all of the economic benefits from, and the right to direct and use, an identified asset for a period of time in exchange for consideration. The determination of lease classification requires various judgments and estimates by management which may include the fair value of the equipment at lease inception, useful life of the equipment under lease, estimate of the lease residual value and collectability of minimum lease payments. Management has policies and procedures in place for the determination of lease classification and review of the related judgments and estimates for all leases.

As a lessor, TCF provides various types of lease financing that are classified for accounting purposes as direct financing, sales-type or operating leases. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are classified as direct financing or sales-type leases and are recorded in loans and leases. Direct financing and sales-type leases are carried at the combined present value of future minimum lease payments and lease residual values.

Interest income on net investment in direct financing and sales-type leases is recognized using methods that approximate a level yield over the fixed, non-cancelable term of the lease, including pro rata rent payments received for the interim period until the lease contract commences and the fixed, non-cancelable lease term begins. Sales-type leases generate selling profit (loss), which is recognized on the commencement date by recording lease revenue net of lease cost. Lease revenue consists of the present value of the future minimum lease payments and lease cost consists of the leased equipment's net book value, less the present value of its residual.

Some lease financing contracts include a residual value component, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of residual values involves judgment regarding product and technology changes, customer behavior, shifts in supply and demand and other economic assumptions. TCF reviews residual assumptions when assessing potential impairment of the net investment in direct financing and sales-type leases each quarter. Decreases in the expected residual value are reflected through an increase in the provision for credit losses, which results in an increase to the allowance for loan and lease losses.

TCF may sell minimum lease payment receivables, primarily as a credit risk reduction tool, to third-party financial institutions at fixed rates, on a non-recourse basis, with its underlying equipment as collateral. For those transactions that qualify for sale accounting, the related lease cash flow stream and the non-recourse financing are derecognized. For those transactions that do not qualify for sale accounting, the underlying lease remains on TCF's Consolidated Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. TCF retains servicing of these leases and bills, collects and remits funds to the third-party financial institution. Upon default by the lessee, the third-party financial institutions may take control of the underlying collateral which TCF would otherwise retain as residual value.

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

See Note 6. Loans and Leases for further information.

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As a lessee, TCF enters into contracts to lease real estate, information technology equipment and various other types of equipment. Leases that transfer substantially all of the benefits and risks of ownership to TCF are classified as finance leases, while all others are classified as operating leases. At lease commencement, a lease liability and right-of-use asset are calculated and recognized for both types of leases. The lease liability is equal to the present value of future minimum lease payments. The right-of-use asset is equal to the lease liability, plus any initial direct costs and prepaid lease payments, less any lease incentives received. Operating lease right-of-use assets are recorded in other assets and finance lease right-of-use assets are recorded in premises and equipment, net. The Company uses the appropriate term Federal Home Loan Bank ("FHLB") rate to determine the discount rate for the present value calculation of future minimum payments when an implicit rate is not known for a given lease. The lease term used in the calculation includes any options to extend that TCF is reasonably certain to exercise.

Subsequent to lease commencement, lease liabilities recorded for finance leases are measured using the effective interest rate method and the related right-of-use assets are amortized on a straight-line basis over the lease term. Interest expense and amortization expense are recorded separately in the income statement in interest expense on borrowings and occupancy and equipment non-interest expense, respectively. For operating leases, total lease cost is comprised of lease expense, short-term lease cost, variable lease cost and sublease income. Lease expense includes future minimum lease payments, which are recognized on a straight-line basis over the lease term, as well as common area maintenance charges, real estate taxes, insurance and other expenses, where applicable, which are expensed as incurred. Total lease cost for operating leases is recorded in occupancy and equipment non-interest expense.

See Note 8. Operating Lease Right-of-Use Assets and Liabilities for further information.

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, the Company adopted ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the use of the OIS Rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate ("LIBOR") swap rate, the OIS Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association Municipal Swap Rate. The adoption of this ASU was on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after January 1, 2019. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2019, the Company adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which requires the decision to capitalize or expense implementation costs incurred in a cloud computing arrangement (i.e. a hosting arrangement) that is a service contract to follow the internal-use software guidance in Accounting Standards Codification ("ASC") 350-40. TCF's policy had been to expense these costs as incurred. The adoption of this ASU was on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it more consistently with the accounting for share-based payments to employees. The new guidance in ASC 718 supersedes the guidance in ASC 505-50. The adoption of this ASU was on a modified retrospective basis with no cumulative effect adjustment recorded. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2019, the Company adopted ASU No. 2017-11, Earnings Per Share (Topic 260): Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, which simplifies the accounting for certain equity-linked financial instruments and embedded features with the down round features that reduce the exercise price when the pricing of a future round of financing is lower. The adoption of this ASU was on a modified retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), which, along with other amendments, requires lessees to recognize most leases on their balance sheet. Lessor accounting is largely unchanged. The ASU requires both quantitative and qualitative disclosure regarding key information about leasing arrangements from both lessees and lessors. Effective January 1, 2019, the Company also adopted the following ASUs, which further amend the original lease guidance in Topic 842: (i) ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842): Amendments to SEC Paragraphs, which rescinds certain SEC Observer comments and staff announcements from the lease guidance and incorporates SEC staff announcements on the effect of a change in tax law on leveraged leases from ASC 840 into ASC 842; (ii) ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which amends the new lease guidance to add an optional transition practical expedient that permits an entity to continue applying its current accounting policy for land easements that existed or expired before January 1, 2019; (iii) ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which makes narrow scope improvements to the standard for specific issues; (iv) ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method allowing the standard to be applied at the adoption date and provides a practical expedient related to separating components of a contract for lessors; (v) ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which allows lessors to elect to account for all sales taxes as lessee costs, instead of determining whether they are lessee or lessor costs in each individual jurisdiction. It requires lessor costs paid by lessees directly to third parties to be excluded from revenue, requires lessors to account for costs excluded from the consideration of a contract that are paid by the lessor as revenue and requires certain variable payments to be allocated (rather than recognized) to lease and nonlease components when changes occur in the facts and circumstances on which the variable payments are based; and (vi) ASU No. 2019-01, Leases (Topic 842): Codification Improvements, which allows lessors that are not manufacturers or dealers to calculate the fair value of an underlying asset as its cost less any volume or trade discount, requires lessors to classify principal payments received from direct financing and sales-type leases as investing activities in the statement of cash flows and clarifies that certain disclosure requirements that were explicitly excluded from annual reporting during the year of adoption are also excluded from interim reporting during the same year. These ASUs were adopted on a modified retrospective basis. Management elected the practical expedients and optional transition method, which allow for leases entered into prior to January 1, 2019 to be accounted for consistent with prior guidance. Management evaluated TCF's leasing contracts and activities, and developed methodologies and processes to estimate and account for the right-of-use assets and lease liabilities based on the present value of future lease payments. On January 1, 2019, the Company recorded right-of-use assets and lease liabilities totaling $91.9 million and $112.8 million, respectively. The impact to capital ratios as a result of increased risk-weighted assets is immaterial. The adoption of this guidance did not result in a material change to lessee expense recognition. The changes to lessor accounting, as well as changes in customer behavior driven by the adoption of these ASUs, impacts the results of TCF's leasing and equipment financing businesses, including earlier recognition of expense due to a narrower definition of initial direct costs and the timing of revenue recognition for certain leases, resulting in more revenue being deferred over the lease term.

Recently Issued Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which makes targeted improvements to the accounting for collaborative arrangements in response to questions raised as a result of the issuance of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which provides an elective exemption to private companies from applying variable interest entities ("VIE") guidance to all entities under common control if certain criteria are met. In addition, this ASU contains an amendment applicable to all entities which amends how a decision maker or service provider determines whether its fee is a variable interest in a VIE when a related party under common control also has an interest in the VIE. The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.

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In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Certain of the amendments require prospective application, while the remainder require retrospective application. Early adoption is allowed either for the entire standard or only the provisions that eliminate or modify the requirements. Management is currently evaluating the potential impact of this guidance on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets, including trade and other receivables, held to maturity debt securities, loans, net investments in leases and purchased financial assets with credit deterioration. The ASU requires the use of a current expected credit loss ("CECL") approach to determine the allowance for credit losses for loans and held to maturity debt securities. CECL requires loss estimates for the remaining estimated life of the asset using historical loss data as well as reasonable and supportable forecasts based on current economic conditions. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provides an option to irrevocably elect the fair value option in Subtopic 825-10 to certain instruments within the scope of Subtopic 326-20 upon adoption of Topic 326.The adoption of these ASUs will be required on a modified retrospective basis with a cumulative effect adjustment required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Early adoption is allowed. Management is currently evaluating the potential impact of this guidance on our consolidated financial statements. CECL represents a significant change in GAAP and may result in a material impact to our consolidated financial statements and capital ratios. The impact of these ASUs will depend on the composition of TCF's portfolios and general economic conditions at the date of adoption. Additionally, there are several implementation questions which could affect the adoption impact once resolved. TCF has established a governance structure to implement these ASUs and has developed a majority of the methodologies and models to be used upon adoption. During the second quarter of 2019, TCF began the process of performing parallel runs for CECL alongside our current allowance process. Management will continue to refine and validate the new methodologies and models throughout 2019.

Note 4. Cash and Due from Banks

At June 30, 2019 and December 31, 2018, TCF Bank was required by Federal Reserve regulations to maintain reserves of $109.6 million and $106.2 million, respectively, in cash on hand or at the Federal Reserve Bank.

TCF maintains cash balances that are restricted as to their use in accordance with certain obligations. Cash payments received on loans serviced for third parties are generally held in separate accounts until remitted. TCF may also retain cash balances for collateral on certain borrowings, forward foreign exchange contracts, interest rate contracts and other contracts. TCF maintained restricted cash totaling $27.8 million and $38.3 million at June 30, 2019 and December 31, 2018, respectively.

TCF had cash held in interest-bearing accounts of $260.7 million and $307.8 million at June 30, 2019 and December 31, 2018, respectively.

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Note 5. Debt Securities Available for Sale and Debt Securities Held to Maturity

Debt securities were as follows:



	At June 30, 2019								At December 31, 2018
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	2,893,169	$	60,257	$	3,903	$	2,949,523	$	1,930,696	$	9,222	$	26,728	$	1,913,190
Other	3		—		—		3		4		—		—		4
Obligations of states and political subdivisions	155,664		4,613		—		160,277		566,304		46		9,479		556,871
Total debt securities available for sale	$	3,048,836	$	64,870	$	3,903	$	3,109,803	$	2,497,004	$	9,268	$	36,207	$	2,470,065
Debt securities held to maturity:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	141,298	$	6,138	$	279	$	147,157	$	146,052	$	1,460	$	1,045	$	146,467
Other securities	3,621		—		—		3,621		2,800		—		—		2,800
Total debt securities held to maturity	$	144,919	$	6,138	$	279	$	150,778	$	148,852	$	1,460	$	1,045	$	149,267

At June 30, 2019 and December 31, 2018, mortgage-backed debt securities with a carrying value of $1.5 million and $1.6 million, respectively, were pledged as collateral to secure certain deposits and borrowings.

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

Net gains (losses) on debt securities were $1.1 million and $1.5 million for the second quarter and first six months of 2019, respectively, and $24 thousand and $87 thousand for the same periods in 2018. During the second quarter and first six months of 2019, TCF sold $201.3 million and $406.7 million, respectively, of obligations of states and political subdivisions debt securities available for sale and recognized net gains of $1.1 million and $1.5 million, respectively. There were no sales of debt securities available for sale during the second quarter and first six months of 2018. There were no impairment charges on debt securities available for sale and debt securities held to maturity during the second quarter and first six months of 2019 and 2018. The net gains (losses) on debt securities for the first six months of 2019 and 2018 also included recoveries on previously impaired debt securities held to maturity.

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Gross unrealized losses and fair value of debt securities available for sale and debt securities held to maturity aggregated by investment category and the length of time the securities were in a continuous loss position were as follows:



	At June 30, 2019
	Less than 12 months				12 months or more				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Debt securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	1,240	$	4	$	373,910	$	3,899	$	375,150	$	3,903
Total debt securities available for sale	$	1,240	$	4	$	373,910	$	3,899	$	375,150	$	3,903

Debt securities held to maturity:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	—	$	—	$	14,792	$	279	$	14,792	$	279
Total debt securities held to maturity	$	—	$	—	$	14,792	$	279	$	14,792	$	279



	At December 31, 2018
	Less than 12 months				12 months or more				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Debt securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	102,709	$	184	$	838,482	$	26,544	$	941,191	$	26,728
Obligations of states and political subdivisions	3,620		—		526,817		9,479		530,437		9,479
Total debt securities available for sale	$	106,329	$	184	$	1,365,299	$	36,023	$	1,471,628	$	36,207

Debt securities held to maturity:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	3,074	$	14	$	31,738	$	1,031	$	34,812	$	1,045
Total debt securities held to maturity	$	3,074	$	14	$	31,738	$	1,031	$	34,812	$	1,045

The amortized cost and fair value of debt securities available for sale and debt securities held to maturity by final contractual maturity were as follows. The final contractual maturities do not consider possible prepayments and therefore expected maturities may differ because borrowers may have the right to prepay.



	At June 30, 2019				At December 31, 2018
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Debt securities available for sale:
Due in 1-5 years	$	14,616	$	14,556	$	24,464	$	24,375
Due in 5-10 years	240,240		247,026		509,832		503,768
Due after 10 years	2,793,980		2,848,221		1,962,708		1,941,922
Total debt securities available for sale	$	3,048,836	$	3,109,803	$	2,497,004	$	2,470,065

Debt securities held to maturity:
Due in 1-5 years	$	3,150	$	3,150	$	2,400	$	2,400
Due in 5-10 years	463		470		430		432
Due after 10 years	141,306		147,158		146,022		146,435
Total debt securities held to maturity	$	144,919	$	150,778	$	148,852	$	149,267

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Interest income attributable to debt securities available for sale was as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018
Taxable interest income	$	21,117	$	8,163	$	37,248	$	13,976
Tax-exempt interest income	1,208		4,353		3,892		8,663
Total interest income	$	22,325	$	12,516	$	41,140	$	22,639

Note 6. Loans and Leases

Loans and leases were as follows:



(In thousands)	At June 30, 2019		At December 31, 2018
Consumer real estate:
First mortgage lien	$	2,472,066	$	2,444,380
Junior lien	2,821,099		2,965,960
Total consumer real estate	5,293,165		5,410,340
Commercial:
Commercial real estate:
Permanent	2,762,500		2,510,583
Construction and development	499,788		397,564
Total commercial real estate	3,262,288		2,908,147
Commercial business	923,523		943,156
Total commercial	4,185,811		3,851,303
Leasing and equipment finance	4,826,785		4,699,740
Inventory finance	3,404,214		3,107,356
Auto finance	1,456,138		1,982,277
Other	18,341		21,295
Total loans and leases⁽¹⁾	$	19,184,454	$	19,072,311


(1)	Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $(16.4) million and $(2.2) million at June 30, 2019 and December 31, 2018, respectively.

Leasing and Equipment Finance Portfolio Included in leasing and equipment finance loans and leases were $2.6 billion and $2.5 billion of direct financing and sales-type leases at June 30, 2019 and December 31, 2018, respectively. Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) and related ASUs on a modified retrospective basis, electing the practical expedients and optional transition method. As such, the following leasing disclosures include information at or for the second quarter and first six months ended June 30, 2019.

The components of the net investment in direct financing and sales-type leases were as follows:



(In thousands)	At June 30, 2019
Carrying amount	$	2,665,465
Unguaranteed residual assets	145,632
Net direct fees and costs and unearned income	(228,484		)
Total net investment in direct financing and sales-type leases	$	2,582,613

The carrying amount of the direct financing and sales-type leases subject to residual value guarantees was $255.9 million at June 30, 2019.

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The components of total lease income were as follows:



	Quarter Ended		Six Months Ended
(In thousands)	June 30, 2019
Interest income - loans and leases:
Interest income on net investment in direct financing and sales-type leases	$	31,598	$	62,882

Leasing and equipment finance non-interest income:
Lease income from operating lease payments	25,423		50,673
Profit (loss) recorded on commencement date on sales-type leases	7,250		14,307
Other⁽¹⁾	9,453		18,285
Total leasing and equipment finance non-interest income	42,126		83,265
Total lease income	$	73,724	$	146,147


(1)	Other leasing and equipment finance non-interest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases.

Lease financing equipment depreciation on equipment leased to others was $19.1 million and $38.4 million for the second quarter and first six months of 2019, respectively. The net book value of equipment leased to others and related initial direct costs under operating leases was $291.5 million at June 30, 2019.

Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at June 30, 2019 were as follows:



(In thousands)
2019	$	493,850
2020	802,302
2021	592,387
2022	373,487
2023	206,888
Thereafter	88,765
Equipment under leases not yet commenced	69,946
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases	2,627,625
Third-party residual value guarantees	37,840
Total carrying amount of direct financing and sales-type leases	$	2,665,465

Undiscounted future minimum lease payments expected to be received for operating leases at June 30, 2019 were as follows:



(In thousands)
2019	$	39,286
2020	66,861
2021	44,821
2022	23,101
2023	8,541
Thereafter	3,975
Total undiscounted future minimum lease payments	$	186,585

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Loan Sales During the second quarter and first six months of 2019, TCF sold $280.7 million and $499.8 million, respectively, of consumer real estate loans, received cash of $292.1 million and $519.8 million, respectively, and recognized net gains of $10.8 million and $18.8 million, respectively. During the second quarter and first six months of 2018, TCF sold $181.7 million and $448.0 million, respectively, of consumer real estate loans, received cash of $188.2 million and $461.0 million, respectively, and recognized net gains of $7.2 million and $16.3 million, respectively. Related to these sales, TCF retained interest-only strips of $0.7 million and $1.6 million during the second quarter and first six months of 2019, respectively, and $0.6 million and $3.8 million during the same periods in 2018. TCF generally retains servicing on loans sold.

No servicing assets or liabilities related to consumer real estate loans were recorded within TCF's Consolidated Statements of Financial Condition at June 30, 2019 and December 31, 2018, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace.

Interest-only strips and the contractual liabilities related to loan sales were as follows:



(In thousands)	At June 30, 2019		At December 31, 2018
Interest-only strips	$	15,236	$	16,835
Contractual liabilities related to consumer real estate loan sales	960		1,321

TCF recorded $21 thousand of impairment charges on interest-only strips during the second quarter and first six months of 2019 and $13 thousand and $616 thousand during the same periods in 2018.

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Note 7. Allowance for Loan and Lease Losses and Credit Quality Information

The rollforwards of the allowance for loan and lease losses were as follows:



(In thousands)	Consumer Real Estate			Commercial			Leasing and Equipment Finance			Inventory Finance			Auto Finance			Other			Total
At or For the Quarter Ended June 30, 2019:
Balance, beginning of period	$	43,820		$	34,711		$	24,832		$	14,132		$	29,854		$	623		$	147,972
Charge-offs	(1,652		)	(3,461		)	(2,790		)	(1,857		)	(9,250		)	(2,056		)	(21,066		)
Recoveries	1,338			16			747			568			3,347			968			6,984
Net (charge-offs) recoveries	(314		)	(3,445		)	(2,043		)	(1,289		)	(5,903		)	(1,088		)	(14,082		)
Provision for credit losses	1,448			5,523			3,493			(140		)	1,989			1,256			13,569
Other⁽¹⁾	(974		)	—			(12		)	30			—			—			(956		)
Balance, end of period	$	43,980		$	36,789		$	26,270		$	12,733		$	25,940		$	791		$	146,503

At or For the Quarter Ended June 30, 2018:
Balance, beginning of period	$	47,685		$	37,198		$	23,182		$	13,253		$	45,822		$	563		$	167,703
Charge-offs	(2,056		)	(4		)	(2,693		)	(673		)	(11,095		)	(1,667		)	(18,188		)
Recoveries	1,278			31			587			156			2,579			787			5,418
Net (charge-offs) recoveries	(778		)	27			(2,106		)	(517		)	(8,516		)	(880		)	(12,770		)
Provision for credit losses	550			3,066			1,182			(860		)	9,302			996			14,236
Other⁽¹⁾	(3,503		)	—			(11		)	(36		)	—			—			(3,550		)
Balance, end of period	$	43,954		$	40,291		$	22,247		$	11,840		$	46,608		$	679		$	165,619

(In thousands)	Consumer Real Estate			Commercial			Leasing and Equipment Finance			Inventory Finance			Auto Finance			Other			Total
At or For the Six Months Ended June 30, 2019:
Balance, beginning of period	$	44,866		$	41,182		$	23,791		$	12,456		$	34,329		$	822		$	157,446
Charge-offs	(3,200		)	(5,561		)	(5,736		)	(4,376		)	(22,285		)	(4,339		)	(45,497		)
Recoveries	2,438			28			1,223			1,000			6,200			1,872			12,761
Net (charge-offs) recoveries	(762		)	(5,533		)	(4,513		)	(3,376		)	(16,085		)	(2,467		)	(32,736		)
Provision for credit losses	1,819			1,140			7,017			3,583			7,696			2,436			23,691
Other⁽¹⁾	(1,943		)	—			(25		)	70			—			—			(1,898		)
Balance, end of period	$	43,980		$	36,789		$	26,270		$	12,733		$	25,940		$	791		$	146,503

At or For the Six Months Ended June 30, 2018:
Balance, beginning of period	$	47,168		$	37,195		$	22,528		$	13,233		$	50,225		$	692		$	171,041
Charge-offs	(4,210		)	(4		)	(4,649		)	(1,222		)	(24,536		)	(3,432		)	(38,053		)
Recoveries	2,315			45			1,203			296			5,364			1,909			11,132
Net (charge-offs) recoveries	(1,895		)	41			(3,446		)	(926		)	(19,172		)	(1,523		)	(26,921		)
Provision for credit losses	2,654			3,055			3,178			(348		)	15,555			1,510			25,604
Other⁽¹⁾	(3,973		)	—			(13		)	(119		)	—			—			(4,105		)
Balance, end of period	$	43,954		$	40,291		$	22,247		$	11,840		$	46,608		$	679		$	165,619


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

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The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology were as follows:



	At June 30, 2019
(In thousands)	Consumer Real Estate		Commercial		Leasing and Equipment Finance		Inventory Finance		Auto Finance		Other		Total
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	26,312	$	34,550	$	21,108	$	12,556	$	25,827	$	791	$	121,144
Individually evaluated for impairment	17,668		2,239		5,162		177		113		—		25,359
Total	$	43,980	$	36,789	$	26,270	$	12,733	$	25,940	$	791	$	146,503
Loans and leases outstanding:
Collectively evaluated for impairment	$	5,176,956	$	4,131,629	$	4,795,026	$	3,401,670	$	1,443,242	$	18,341	$	18,966,864
Individually evaluated for impairment	116,209		54,182		29,485		2,544		12,896		—		215,316
Loans acquired with deteriorated credit quality	—		—		2,274		—		—		—		2,274
Total	$	5,293,165	$	4,185,811	$	4,826,785	$	3,404,214	$	1,456,138	$	18,341	$	19,184,454



	At December 31, 2018
(In thousands)	Consumer Real Estate		Commercial		Leasing and Equipment Finance		Inventory Finance		Auto Finance		Other		Total
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	22,134	$	36,411	$	20,108	$	11,621	$	34,157	$	822	$	125,253
Individually evaluated for impairment	22,732		4,771		3,683		835		172		—		32,193
Total	$	44,866	$	41,182	$	23,791	$	12,456	$	34,329	$	822	$	157,446
Loans and leases outstanding:
Collectively evaluated for impairment	$	5,295,817	$	3,815,422	$	4,672,168	$	3,099,073	$	1,968,645	$	21,291	$	18,872,416
Individually evaluated for impairment	114,523		35,881		23,755		8,283		13,632		4		196,078
Loans acquired with deteriorated credit quality	—		—		3,817		—		—		—		3,817
Total	$	5,410,340	$	3,851,303	$	4,699,740	$	3,107,356	$	1,982,277	$	21,295	$	19,072,311

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Accruing and Non-accrual Loans and Leases TCF's key credit quality indicator is the receivable's payment performance status, defined as accruing or non-accruing. Non-accrual loans and leases are those which management believes have a higher risk of loss. Delinquent balances are determined based on the contractual terms of the loan or lease. Loans and leases that are over 60 days delinquent have a higher potential to become non-accrual and generally are a leading indicator for future charge-off trends. TCF's accruing and non-accrual loans and leases were as follows:



	At June 30, 2019
(In thousands)	Current-59 Days Delinquent and Accruing		60-89 Days Delinquent and Accruing		90 Days or More Delinquent and Accruing		Total Accruing		Non-accrual		Total
Consumer real estate:
First mortgage lien	$	2,430,703	$	2,868	$	1,229	$	2,434,800	$	37,266	$	2,472,066
Junior lien	2,789,272		1,647		—		2,790,919		30,180		2,821,099
Total consumer real estate	5,219,975		4,515		1,229		5,225,719		67,446		5,293,165
Commercial:
Commercial real estate	3,261,743		—		—		3,261,743		545		3,262,288
Commercial business	917,273		2		—		917,275		6,248		923,523
Total commercial	4,179,016		2		—		4,179,018		6,793		4,185,811
Leasing and equipment finance	4,789,954		8,665		3,184		4,801,803		22,708		4,824,511
Inventory finance	3,401,785		16		—		3,401,801		2,413		3,404,214
Auto finance	1,439,746		5,714		2,045		1,447,505		8,633		1,456,138
Other	18,313		25		3		18,341		—		18,341
Subtotal	19,048,789		18,937		6,461		19,074,187		107,993		19,182,180
Portfolios acquired with deteriorated credit quality	1,822		22		430		2,274		—		2,274
Total	$	19,050,611	$	18,959	$	6,891	$	19,076,461	$	107,993	$	19,184,454



	At December 31, 2018
(In thousands)	Current-59 Days Delinquent and Accruing		60-89 Days Delinquent and Accruing		90 Days or More Delinquent and Accruing		Total Accruing		Non-accrual		Total
Consumer real estate:
First mortgage lien	$	2,403,391	$	3,281	$	1,276	$	2,407,948	$	36,432	$	2,444,380
Junior lien	2,942,414		1,213		—		2,943,627		22,333		2,965,960
Total consumer real estate	5,345,805		4,494		1,276		5,351,575		58,765		5,410,340
Commercial:
Commercial real estate	2,903,629		—		—		2,903,629		4,518		2,908,147
Commercial business	932,648		1		—		932,649		10,507		943,156
Total commercial	3,836,277		1		—		3,836,278		15,025		3,851,303
Leasing and equipment finance	4,670,021		7,996		2,642		4,680,659		15,264		4,695,923
Inventory finance	3,098,763		310		—		3,099,073		8,283		3,107,356
Auto finance	1,962,042		8,326		3,331		1,973,699		8,578		1,982,277
Other	21,264		11		17		21,292		3		21,295
Subtotal	18,934,172		21,138		7,266		18,962,576		105,918		19,068,494
Portfolios acquired with deteriorated credit quality	3,639		—		178		3,817		—		3,817
Total	$	18,937,811	$	21,138	$	7,444	$	18,966,393	$	105,918	$	19,072,311

Interest income recognized on loans and leases in non-accrual status and contractual interest that would have been recorded had the loans and leases performed in accordance with their original contractual terms were as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018
Contractual interest due on non-accrual loans and leases	$	2,712	$	2,957	$	5,296	$	5,884
Interest income recognized on non-accrual loans and leases	255		445		478		903
Unrecognized interest income	$	2,457	$	2,512	$	4,818	$	4,981

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Consumer real estate loans to customers currently involved in ongoing Chapter 7 or Chapter 13 bankruptcy proceedings which have not yet been discharged, dismissed or completed were as follows:



(In thousands)	At June 30, 2019		At December 31, 2018
0-59 days delinquent and accruing	$	2,365	$	3,306
Non-accrual	12,686		9,046
Total consumer real estate loans to customers in bankruptcy	$	15,051	$	12,352

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

TDR loans were as follows:



	At June 30, 2019						At December 31, 2018
(In thousands)	Accruing TDR Loans		Non-accrual TDR Loans		Total TDR Loans		Accruing TDR Loans		Non-accrual TDR Loans		Total TDR Loans
Consumer real estate	$	78,686	$	17,471	$	96,157	$	80,739	$	16,192	$	96,931
Commercial	38,882		545		39,427		4,174		3,946		8,120
Leasing and equipment finance	6,777		1,942		8,719		8,491		1,754		10,245
Inventory finance	131		2		133		—		453		453
Auto finance	4,262		6,646		10,908		5,054		6,362		11,416
Other	—		—		—		1		—		1
Total	$	128,738	$	26,606	$	155,344	$	98,459	$	28,707	$	127,166

Consumer real estate TDR loans generally remain on accruing status following modification if they are less than 90 days past due and payment in full under the modified terms of the loan is expected based on a current credit evaluation and historical payment performance. Of the non-accrual TDR balance at June 30, 2019, $8.1 million, or 46.6%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed by the borrower, of which 66.2% were current. Of the non-accrual TDR balance at December 31, 2018, $7.8 million, or 48.2%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed by the borrower, of which 56.5% were current. All eligible loans are re-aged to current delinquency status upon modification.

The allowance on accruing consumer real estate TDR loans was $16.8 million, or 21.3% of the outstanding balance, at June 30, 2019 and $15.5 million, or 19.2% of the outstanding balance, at December 31, 2018. At June 30, 2019, no accruing consumer real estate TDR loans were 60 days or more delinquent and 0.3% of accruing consumer real estate TDR loans were 60 days or more delinquent at December 31, 2018.

Unfunded commitments to consumer real estate loans classified as TDRs were $0.5 million and $0.6 million at June 30, 2019 and December 31, 2018, respectively. At June 30, 2019 and December 31, 2018, no additional funds were committed to the remaining classes of finance receivables classified as TDRs.

Loan modifications to troubled borrowers are no longer disclosed as TDR loans in the calendar years after modification if the loans were modified to an interest rate equal to or greater than the yields of new loan originations with comparable risk at the time of restructuring and if the loan is performing based on the restructured terms; however, these loans are still considered impaired and follow TCF's impaired loan reserve policies.

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Interest income on TDR loans is recognized based on the restructured terms. Unrecognized interest represents the financial impact of TDR loans and is the difference between interest income recognized on accruing TDR loans and the contractual interest that would have been recorded had the loans performed in accordance with their original contractual terms. The following table summarizes the financial effects of consumer real estate accruing TDR loans. The financial effects of TDR loans for the remaining classes of finance receivables were not material for the second quarter and first six months of 2019 and 2018.



	Quarter Ended June 30,
	2019						2018
(In thousands)	Contractual Interest Due		Interest Income		Unrecognized Interest		Contractual Interest Due		Interest Income		Unrecognized Interest
Consumer real estate:
First mortgage lien	$	972	$	582	$	390	$	1,047	$	616	$	431
Junior lien	366		249		117		418		285		133
Total consumer real estate	$	1,338	$	831	$	507	$	1,465	$	901	$	564

	Six Months Ended June 30,
	2019						2018
(In thousands)	Contractual Interest Due		Interest Income		Unrecognized Interest		Contractual Interest Due		Interest Income		Unrecognized Interest
Consumer real estate:
First mortgage lien	$	1,940	$	1,161	$	779	$	2,113	$	1,256	$	857
Junior lien	740		505		235		842		575		267
Total consumer real estate	$	2,680	$	1,666	$	1,014	$	2,955	$	1,831	$	1,124

TCF considers a loan to have defaulted when under the modified terms it becomes 90 or more days delinquent, has been transferred to non-accrual status, has been charged down or has been transferred to other real estate owned or repossessed and returned assets. The following table summarizes the TDR loans that defaulted during the periods presented that were modified during the respective reporting period or within one year of the beginning of the respective reporting period.



	Quarter Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018
Defaulted TDR loan balances modified during the applicable period:⁽¹⁾
Consumer real estate:
First mortgage lien	$	562	$	493	$	752	$	1,973
Junior lien	152		36		246		64
Total consumer real estate	714		529		998		2,037
Commercial business	—		—		—		4,697
Leasing and equipment finance	297		—		297		—
Auto finance	447		307		1,017		697
Defaulted TDR loan balances modified during the applicable period	$	1,458	$	836	$	2,312	$	7,431


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

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Impaired Loans and Leases Effective January 1, 2019, in conjunction with the adoption of ASU No. 2016-02, Leases (Topic 842) and related ASUs, TCF considers impaired loans and leases to include non-accrual commercial loans, non-accrual leasing and equipment finance loans and leases and non-accrual inventory finance loans, as well as all TDR loans. Previously, TCF did not include impaired leases within the following tables. For purposes of this disclosure, PCI loans have been excluded. Non-accrual impaired loans and leases, including non-accrual TDR loans, are included in non-accrual loans and leases within the previous tables. Accruing TDR loans have been disclosed by delinquency status within the previous tables of accruing and non-accrual loans and leases. In the following table, the balance of impaired loans and leases represents the amount recorded within loans and leases on the Consolidated Statements of Financial Condition, whereas the unpaid contractual balance represents the balances legally owed by the borrowers.

Information on impaired loans and leases at June 30, 2019 and information on impaired loans at December 31, 2018 was as follows:



	At June 30, 2019						At December 31, 2018
(In thousands)	Unpaid Contractual Balance		Loan and Lease Balance		Related Allowance Recorded		Unpaid Contractual Balance		Loan Balance		Related Allowance Recorded
Impaired loans and leases with an allowance recorded:
Consumer real estate:
First mortgage lien	$	82,395	$	78,929	$	14,431	$	64,529	$	61,744	$	16,848
Junior lien	31,147		29,751		3,237		25,861		24,264		5,656
Total consumer real estate	113,542		108,680		17,668		90,390		86,008		22,504
Commercial:
Commercial real estate	4,839		4,429		438		4,905		4,474		1,108
Commercial business	3,378		3,378		1,801		12,317		9,192		3,663
Total commercial	8,217		7,807		2,239		17,222		13,666		4,771
Leasing and equipment finance	29,485		29,485		5,162		15,763		15,763		1,856
Inventory finance	934		937		177		7,364		7,371		835
Auto finance	757		578		113		917		646		81
Other	—		—		—		2		1		—
Total impaired loans and leases with an allowance recorded	152,935		147,487		25,359		131,658		123,455		30,047
Impaired loans and leases without an allowance recorded:
Consumer real estate:
First mortgage lien	8,275		5,939		—		11,829		9,586		—
Junior lien	11,639		1,590		—		10,427		1,337		—
Total consumer real estate	19,914		7,529		—		22,256		10,923		—
Commercial:
Commercial real estate	43,583		43,495		—		4,275		4,208		—
Commercial business	4,470		2,880		—		1,328		1,325		—
Total commercial	48,053		46,375		—		5,603		5,533		—
Inventory finance	1,607		1,607		—		911		912		—
Auto finance	17,573		12,318		—		15,071		10,770		—
Other	363		—		—		329		—		—
Total impaired loans and leases without an allowance recorded	87,510		67,829		—		44,170		28,138		—
Total impaired loans and leases	$	240,445	$	215,316	$	25,359	$	175,828	$	151,593	$	30,047

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The average balance of impaired loans and leases and interest income recognized on impaired loans and leases for the second quarter and first six months of 2019 and the average loan balance of impaired loans and interest income recognized on impaired loans for the same periods in 2018 were as follows:



	Quarter Ended June 30,								Six Months Ended June 30,
	2019				2018				2019				2018
(In thousands)	Average Loan and Lease Balance		Interest Income Recognized		Average Loan Balance		Interest Income Recognized		Average Loan and Lease Balance		Interest Income Recognized		Average Loan Balance		Interest Income Recognized
Impaired loans and leases with an allowance recorded:
Consumer real estate:
First mortgage lien	$	72,145	$	734	$	70,964	$	617	$	70,337	$	1,210	$	71,522	$	1,271
Junior lien	29,330		235		26,998		290		27,007		471		27,170		595
Total consumer real estate	101,475		969		97,962		907		97,344		1,681		98,692		1,866
Commercial:
Commercial real estate	4,422		52		5,894		—		4,452		69		5,965		—
Commercial business	5,065		—		7,269		31		6,285		—		7,557		117
Total commercial	9,487		52		13,163		31		10,737		69		13,522		117
Leasing and equipment finance	28,881		41		16,168		48		22,624		85		16,445		54
Inventory finance	616		—		1,339		8		4,154		6		1,394		31
Auto finance	722		—		615		—		611		—		758		—
Other	1		—		3		—		1		—		3		—
Total impaired loans and leases with an allowance recorded	141,182		1,062		129,250		994		135,471		1,841		130,814		2,068
Impaired loans and leases without an allowance recorded:
Consumer real estate:
First mortgage lien	12,406		35		10,389		173		7,762		342		10,415		356
Junior lien	1,800		24		1,607		53		1,464		75		1,618		108
Total consumer real estate	14,206		59		11,996		226		9,226		417		12,033		464
Commercial:
Commercial real estate	32,090		378		4,386		58		23,852		650		4,421		116
Commercial business	1,530		—		—		—		2,101		—		—		—
Total commercial	33,620		378		4,386		58		25,953		650		4,421		116
Inventory finance	1,141		37		1,518		48		1,260		92		1,711		105
Auto finance	12,534		81		8,084		65		11,544		172		7,926		134
Total impaired loans and leases without an allowance recorded	61,501		555		25,984		397		47,983		1,331		26,091		819
Total impaired loans and leases	$	202,683	$	1,617	$	155,234	$	1,391	$	183,454	$	3,172	$	156,905	$	2,887

Other Real Estate Owned and Repossessed and Returned Assets Other real estate owned and repossessed and returned assets were as follows:



(In thousands)	At June 30, 2019		At December 31, 2018
Other real estate owned	$	11,964	$	17,403
Repossessed and returned assets	11,904		14,574
Consumer real estate loans in process of foreclosure	13,079		15,540

Other real estate owned and repossessed and returned assets were written down $1.3 million and $3.1 million during the second quarter and first six months of 2019, respectively, and $0.8 million and $2.0 million during the same periods in 2018.

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Note 8. Operating Lease Right-of-Use Assets and Liabilities

Operating lease right-of-use assets, included in other assets, were $81.8 million at June 30, 2019.

Operating lease liabilities, included in accrued expenses and other liabilities, were $101.3 million at June 30, 2019. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at June 30, 2019 were as follows:



(In thousands)
2019	$	14,542
2020	25,143
2021	16,812
2022	12,471
2023	10,790
Thereafter	31,696
Total undiscounted future minimum operating lease payments	111,454
Discount	(10,159		)
Total operating lease liabilities	$	101,295

The weighted-average discount rate and remaining lease term for operating leases were as follows:



	At June 30, 2019
Weighted-average discount rate	2.85	%
Weighted-average remaining lease term (years)	5.9

The components of total lease cost for operating leases, included in occupancy and equipment non-interest expense, were as follows:



	Quarter Ended			Six Months Ended
(In thousands)	June 30, 2019
Lease expense	$	9,222		$	18,121
Short-term and variable lease cost	46			91
Sublease income	(335		)	(742		)
Total lease cost for operating leases	$	8,933		$	17,470

Note 9. Long-term Borrowings

Long-term borrowings were as follows:



(In thousands)	At June 30, 2019		At December 31, 2018
FHLB advances	$	1,100,000	$	1,100,000
Subordinated bank notes	408,921		253,391
Discounted lease rentals	105,530		92,976
Capital lease obligation	3,080		3,105
Total long-term borrowings	$	1,617,531	$	1,449,472

On June 27, 2019, TCF Bank priced an offering of $150.0 million of fixed-to-floating rate subordinated notes, which closed on July 2, 2019 at par. The fixed-to-floating rate subordinated notes, due July 2, 2029, bear an initial interest rate of 4.125% per annum, payable semi-annually in arrears on January 2 and July 2, commencing on January 2, 2020. The subordinated notes are redeemable at TCF Bank's option beginning on July 2, 2024. Effective July 2, 2024, unless the notes are redeemed, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR rate plus 237.5 basis points, payable quarterly in arrears on January 2, April 2, July 2 and October 2, commencing on October 2, 2024. TCF Bank incurred issuance costs of approximately $1.4 million that are amortized as interest expense over the full term of the notes using the effective interest method.

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At June 30, 2019, TCF Bank had pledged loans secured by consumer and commercial real estate and FHLB stock with an aggregate carrying value of $4.6 billion as collateral for FHLB advances. At June 30, 2019, $1.1 billion of the long-term FHLB advances outstanding were prepayable at TCF's option.

Note 10. Regulatory Capital Requirements

TCF and TCF Bank are subject to minimum capital requirements administered by the federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal banking regulators that could have a material adverse effect on TCF. In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained earnings for the current year combined with its net retained earnings for the preceding two calendar years, which was $227.1 million at June 30, 2019, without prior approval of the Office of the Comptroller of the Currency ("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.

Regulatory capital information for TCF and TCF Bank was as follows:



	TCF						TCF Bank
	At June 30,			At December 31,			At June 30,			At December 31,			Well-capitalized Standard		Minimum Capital Requirement
(Dollars in thousands)	2019			2018			2019			2018			Well-capitalized Standard		Minimum Capital Requirement
Regulatory Capital:
Common equity Tier 1 capital	$	2,305,706		$	2,224,183		$	2,307,194		$	2,282,013
Tier 1 capital	2,495,178			2,408,393			2,332,052			2,300,472
Total capital	2,811,347			2,750,581			2,674,491			2,675,347

Regulatory Capital Ratios:
Common equity Tier 1 capital ratio	10.99		%	10.82		%	11.00		%	11.10		%	6.50	%	7.00	%
Tier 1 risk-based capital ratio	11.90			11.72			11.12			11.19			8.00		8.50
Total risk-based capital ratio	13.41			13.38			12.76			13.01			10.00		10.50
Tier 1 leverage ratio	10.27			10.44			9.59			9.97			5.00		4.00

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Note 11. Stock Compensation

TCF's restricted stock award transactions under the TCF Financial 2015 Omnibus Incentive Plan (the "Omnibus Incentive Plan") and the TCF Financial Incentive Stock Program were as follows:



	Shares		Weighted-average Grant Date Fair Value
Outstanding at December 31, 2018	2,289,446		$	16.70
Granted	520,470		20.77
Forfeited/canceled	(249,895	)	17.19
Vested	(646,209	)	16.89
Outstanding at June 30, 2019	1,913,812		17.68

At June 30, 2019, there were 114,049 shares of performance-based restricted stock awards outstanding that will vest only if certain performance goals and service conditions are achieved. Failure to achieve the performance goals and service conditions will result in all or a portion of the shares being forfeited. Unrecognized stock compensation expense for restricted stock awards was $21.6 million with a weighted-average remaining amortization period of 1.7 years at June 30, 2019.

At June 30, 2019, there were 331,155 performance-based restricted stock units granted and outstanding under the Omnibus Incentive Plan that will vest only if certain performance goals are achieved. The number of restricted stock units granted was at target and the number of shares that will be issued when the restricted stock units vest will depend on actual performance with a maximum total payout of 150% of target. Failure to achieve the performance goals will result in all or a portion of the restricted stock units being forfeited. The remaining weighted-average performance period of the restricted stock units was 1.9 years at June 30, 2019.

Compensation expense for restricted stock awards and restricted stock units was $2.4 million and $3.9 million for the second quarter and first six months of 2019, respectively, and $3.8 million and $9.6 million for the same periods in 2018.

Note 12. Employee Benefit Plans

The net periodic benefit plan (income) cost included in other non-interest expense for the TCF Cash Balance Pension Plan (the "Pension Plan") and the Postretirement Plan were as follows:



	Pension Plan
	Quarter Ended June 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Interest cost	$	264		$	246		$	528		$	492
Return on plan assets	(137		)	(132		)	(274		)	(264		)
Net periodic benefit plan (income) cost	$	127		$	114		$	254		$	228



	Postretirement Plan
	Quarter Ended June 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Interest cost	$	30		$	27		$	60		$	55
Amortization of prior service cost	(11		)	(11		)	(23		)	(23		)
Net periodic benefit plan (income) cost	$	19		$	16		$	37		$	32

TCF made no cash contributions to the Pension Plan during the second quarter and first six months of 2019 and 2018. TCF contributed $0.1 million and $0.2 million to the Postretirement Plan during the second quarter and first six months of 2019 and 2018, respectively.

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Note 13. Derivative Instruments

Derivative instruments, recognized at fair value within other assets or accrued expenses and other liabilities on the Consolidated Statements of Financial Condition, were as follows:



	At June 30, 2019
			Fair Value
(In thousands)	Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts	$	150,000	$	—		$	182
Forward foreign exchange contracts	170,229		—			2,158
Total derivatives designated as hedging instruments			—			2,340
Derivatives not designated as hedging instruments:
Interest rate contracts	1,343,752		30,861			3,305
Forward foreign exchange contracts	238,274		—			3,063
Interest rate lock commitments	80,715		1,415			13
Other contracts	13,020		—			435
Total derivatives not designated as hedging instruments			32,276			6,816
Total derivatives before netting			32,276			9,156
Netting⁽¹⁾			(3,231		)	(8,687		)
Total derivatives, net			$	29,045		$	469



	At December 31, 2018
			Fair Value
(In thousands)	Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts	$	150,000	$	393		$	—
Forward foreign exchange contracts	157,271		2,980			—
Total derivatives designated as hedging instruments			3,373			—
Derivatives not designated as hedging instruments:
Interest rate contracts	1,095,449		7,516			3,732
Forward foreign exchange contracts	254,274		3,709			13
Interest rate lock commitments	28,007		652			28
Other contracts	13,020		—			583
Total derivatives not designated as hedging instruments			11,877			4,356
Total derivatives before netting			15,250			4,356
Netting⁽¹⁾			(6,982		)	(991		)
Total derivatives, net			$	8,268		$	3,365


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

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Derivative instruments may be subject to master netting arrangements and collateral arrangements and qualify for offset in the Consolidated Statements of Financial Condition. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Derivative instruments subject to master netting arrangements and collateral arrangements are recognized on a net basis in the Consolidated Statements of Financial Condition. The gross amounts recognized, gross amounts offset and net amount presented of derivative instruments were as follows:



	At June 30, 2019
(In thousands)	Gross Amounts Recognized		Gross Amounts Offset⁽¹⁾			Net Amount Presented
Derivative assets:
Interest rate contracts	$	30,861	$	(3,231	)	$	27,630
Interest rate lock commitments	1,415		—			1,415
Total derivative assets	$	32,276	$	(3,231	)	$	29,045
Derivative liabilities:
Interest rate contracts	$	3,487	$	(3,217	)	$	270
Forward foreign exchange contracts	5,221		(5,035		)	186
Interest rate lock commitments	13		—			13
Other contracts	435		(435		)	—
Total derivative liabilities	$	9,156	$	(8,687	)	$	469



	At December 31, 2018
(In thousands)	Gross Amounts Recognized		Gross Amounts Offset⁽¹⁾			Net Amount Presented
Derivative assets:
Interest rate contracts	$	7,909	$	(395	)	$	7,514
Forward foreign exchange contracts	6,689		(6,587		)	102
Interest rate lock commitments	652		—			652
Total derivative assets	$	15,250	$	(6,982	)	$	8,268
Derivative liabilities:
Interest rate contracts	$	3,732	$	(395	)	$	3,337
Forward foreign exchange contracts	13		(13		)	—
Interest rate lock commitments	28		—			28
Other contracts	583		(583		)	—
Total derivative liabilities	$	4,356	$	(991	)	$	3,365


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

Derivatives Designated as Hedging Instruments

Interest Rate Contract TCF Bank entered into an interest rate swap agreement which was designated as a fair value hedge of its contemporaneously issued subordinated debt with a stated maturity of 2025. The interest rate swap agreement effectively converts the fixed interest rate to a floating rate based on the three-month LIBOR plus a fixed number of basis points on the $150.0 million notional amount. The carrying amount of the hedged subordinated debt, including the cumulative basis adjustment related to the application of fair value hedge accounting, is recorded in long-term borrowings on the Consolidated Statements of Financial Condition and was as follows:



	Carrying Amount of the Hedged Liability				Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Liability
(In thousands)	At June 30, 2019		At December 31, 2018		At June 30, 2019		At December 31, 2018
Subordinated bank note - 2025	$	151,152	$	144,296	$	2,582	$	(4,165	)

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The gain (loss) related to the fair value hedge and the line within the Consolidated Statements of Income where the gain (loss) was recorded were as follows:



	Quarter Ended June 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Gain (loss) on fair value hedge:
Hedged item	$	(4,137	)	$	1,325		$	(6,747	)	$	5,131
Derivative designated as a hedging instrument	4,181			(1,598		)	6,743			(5,456		)
Income statement line where the gain (loss) on the fair value hedge was recorded:
Interest expense - borrowings	$	16,077		$	11,571		$	30,935		$	21,124

Forward Foreign Exchange Contracts Certain of TCF's forward foreign exchange contracts are used to manage the foreign exchange risk associated with the Company's net investment in TCF Commercial Finance Canada, Inc., a wholly-owned indirect Canadian subsidiary of TCF Bank. These forward foreign exchange contracts have been designated as net investment hedges. The effect of net investment hedges on accumulated other comprehensive income was as follows:



	Quarter Ended June 30,					Six Months Ended June 30,
(In thousands)	2019			2018		2019			2018
Forward foreign exchange contracts	$	(2,881	)	$	5,037	$	(5,931	)	$	7,174

Derivatives Not Designated as Hedging Instruments Certain other interest rate contracts, forward foreign exchange contracts, interest rate lock commitments and other contracts have not been designated as hedging instruments. The effect of these derivatives on the Consolidated Statements of Income was as follows:



		Quarter Ended June 30,					Six Months Ended June 30,
(In thousands)	Location of Gain (Loss)	2019			2018		2019			2018
Interest rate contracts	Other non-interest income	$	(735	)	$	7	$	(1,543	)	$	106
Forward foreign exchange contracts	Other non-interest expense	(3,830		)	2,812		(8,609		)	11,756
Interest rate lock commitments	Gains on sales of loans, net	287			418		780			1,042
Other contracts	Other non-interest expense	—			18		—			18
Net gain (loss) recognized		$	(4,278	)	$	3,255	$	(9,372	)	$	12,922

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

At June 30, 2019 and December 31, 2018, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $30.5 million and $25.7 million, respectively. In the event TCF is rated less than BB- by Standard and Poor's, the contracts could be terminated or TCF may be required to provide approximately $0.6 million and $0.5 million in additional collateral at June 30, 2019 and December 31, 2018, respectively. There were $0.7 million of forward foreign exchange contracts containing credit risk-related features in a liability position at June 30, 2019 and none at December 31, 2018.

At June 30, 2019, TCF had posted $12.3 million, $5.6 million and $1.3 million of cash collateral related to its interest rate contracts, forward foreign exchange contracts and other contracts, respectively.

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Note 14. Fair Value Disclosures

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

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

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

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

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

Loans and Leases Loans and leases for which repayment is expected to be provided solely by the value of the underlying collateral, categorized as Level 3 and recorded at fair value on a non-recurring basis, are valued based on the fair value of that collateral less estimated selling costs. Effective January 1, 2019, in conjunction with the adoption of ASU No. 2016-02, Leases (Topic 842) and the related ASUs, such loans and leases include non-accrual impaired loans and leases as well as certain delinquent non-accrual consumer real estate and auto finance loans. Previously, TCF did not include non-accrual impaired leases. The fair value of the collateral is determined based on internal estimates and/or assessments provided by third-party appraisers.

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

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Derivative Instruments

Interest Rate Contracts TCF executes interest rate contracts with commercial banking customers to facilitate their respective risk management strategies. Certain of these interest rate contracts are simultaneously hedged by offsetting interest rate contracts TCF executes with a third party, minimizing TCF's net interest rate risk exposure resulting from such transactions. TCF also has an interest rate swap agreement to convert its $150.0 million of fixed-rate subordinated notes with a stated maturity of 2025 to floating rate debt. These derivative instruments are recorded at fair value. The fair value of these interest rate contracts, categorized as Level 2, is determined using a cash flow model which may consider the forward curve, the discount curve and credit valuation adjustments related to counterparty and/or borrower non-performance risk.

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

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

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

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

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

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

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The balances of assets and liabilities measured at fair value on a recurring and non-recurring basis were as follows:



	At June 30, 2019
(In thousands)	Level 1		Level 2		Level 3		Total
Recurring fair value measurements through net income:
Assets:
Loans held for sale	$	—	$	—	$	29,211	$	29,211
Interest rate contracts⁽¹⁾	—		30,861		—		30,861
Interest rate lock commitments⁽¹⁾	—		—		1,415		1,415
Forward loan sales commitments	—		—		195		195
Assets held in trust for deferred compensation plans	38,070		—		—		38,070
Total assets	$	38,070	$	30,861	$	30,821	$	99,752
Liabilities:
Interest rate contracts⁽¹⁾	$	—	$	3,487	$	—	$	3,487
Forward foreign exchange contracts⁽¹⁾	—		3,063		—		3,063
Interest rate lock commitments⁽¹⁾	—		—		13		13
Other contracts⁽¹⁾	—		—		435		435
Forward loan sales commitments	—		—		340		340
Liabilities held in trust for deferred compensation plans	38,070		—		—		38,070
Total liabilities	$	38,070	$	6,550	$	788	$	45,408
Recurring fair value measurements through other comprehensive income:
Assets:
Debt securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	—	$	2,949,523	$	—	$	2,949,523
Other	—		—		3		3
Obligations of states and political subdivisions	—		160,277		—		160,277
Interest-only strips	—		—		15,236		15,236
Total assets	$	—	$	3,109,800	$	15,239	$	3,125,039
Liabilities:
Forward foreign exchange contracts⁽¹⁾	$	—	$	2,158	$	—	$	2,158
Total liabilities	$	—	$	2,158	$	—	$	2,158
Non-recurring fair value measurements:
Loans and leases	$	—	$	—	$	73,717	$	73,717
Other real estate owned	—		—		7,858		7,858
Repossessed and returned assets	—		5,953		2,177		8,130
Total non-recurring fair value measurements	$	—	$	5,953	$	83,752	$	89,705


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

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	At December 31, 2018
(In thousands)	Level 1		Level 2		Level 3		Total
Recurring fair value measurements through net income:
Assets:
Loans held for sale	$	—	$	—	$	18,070	$	18,070
Interest rate contracts⁽¹⁾	—		7,909		—		7,909
Forward foreign exchange contracts⁽¹⁾	—		3,709		—		3,709
Interest rate lock commitments⁽¹⁾	—		—		652		652
Forward loan sales commitments	—		—		152		152
Assets held in trust for deferred compensation plans	33,217		—		—		33,217
Total assets	$	33,217	$	11,618	$	18,874	$	63,709
Liabilities:
Interest rate contracts⁽¹⁾	$	—	$	3,732	$	—	$	3,732
Forward foreign exchange contracts⁽¹⁾	—		13		—		13
Interest rate lock commitments⁽¹⁾	—		—		28		28
Other contracts⁽¹⁾	—		—		583		583
Forward loan sales commitments	—		—		178		178
Liabilities held in trust for deferred compensation plans	33,217		—		—		33,217
Total liabilities	$	33,217	$	3,745	$	789	$	37,751
Recurring fair value measurements through other comprehensive income:
Assets:
Debt securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies	$	—	$	1,913,190	$	—	$	1,913,190
Other	—		—		4		4
Obligations of states and political subdivisions	—		556,871		—		556,871
Interest-only strips	—		—		16,835		16,835
Forward foreign exchange contracts⁽¹⁾	—		2,980		—		2,980
Total assets	$	—	$	2,473,041	$	16,839	$	2,489,880
Non-recurring fair value measurements:
Loans	$	—	$	—	$	57,663	$	57,663
Other real estate owned	—		—		9,397		9,397
Repossessed and returned assets	—		4,358		5,165		9,523
Total non-recurring fair value measurements	$	—	$	4,358	$	72,225	$	76,583


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

Management assesses the appropriate classification of financial assets and liabilities within the fair value hierarchy by monitoring the level of available observable market information. Changes in markets or economic conditions, as well as changes to Company valuation models, may require the transfer of financial instruments from one fair value level to another. Such transfers, if any, are recorded at the fair values as of the beginning of the quarter in which the transfers occurred. TCF had no transfers during the second quarter and first six months of 2019 and 2018.

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The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:



(In thousands)	Debt Securities Available for Sale			Loans Held for Sale			Interest-only Strips			Interest Rate Lock Commitments		Other Contracts			Forward Loan Sales Commitments
At or For the Quarter Ended June 30, 2019:
Asset (liability) balance, beginning of period	$	4		$	9,863		$	16,163		$	1,117	$	(510	)	$	(118	)
Total net gains (losses) included in:
Net income	—			700			653			285		—			(27		)
Other comprehensive income (loss)	—			—			25			—		—			—
Sales	—			(91,255		)	—			—		—			—
Originations	—			109,904			708			—		—			—
Principal paydowns / settlements	(1		)	(1		)	(2,313		)	—		75			—
Asset (liability) balance, end of period	$	3		$	29,211		$	15,236		$	1,402	$	(435	)	$	(145	)
At or For the Quarter Ended June 30, 2018:
Asset (liability) balance, beginning of period	$	5		$	9,058		$	21,851		$	558	$	(538	)	$	144
Total net gains (losses) included in:
Net income	—			341			850			300		18			(34		)
Other comprehensive income (loss)	—			—			(8		)	—		—			—
Sales	—			(75,134		)	—			—		—			—
Originations	—			84,294			550			—		—			—
Principal paydowns / settlements	(1		)	(5		)	(3,356		)	—		79			—
Asset (liability) balance, end of period	$	4		$	18,554		$	19,887		$	858	$	(441	)	$	110

(In thousands)	Debt Securities Available for Sale			Loans Held for Sale			Interest-only Strips			Interest Rate Lock Commitments		Other Contracts			Forward Loan Sales Commitments
At or For the Six Months Ended June 30, 2019:
Asset (liability) balance, beginning of period	$	4		$	18,070		$	16,835		$	624	$	(583	)	$	(26	)
Total net gains (losses) included in:
Net income	—			534			1,365			778		—			(119		)
Other comprehensive income (loss)	—			—			311			—		—			—
Sales	—			(164,693		)	—			—		—			—
Originations	—			175,304			1,552			—		—			—
Principal paydowns / settlements	(1		)	(4		)	(4,827		)	—		148			—
Asset (liability) balance, end of period	$	3		$	29,211		$	15,236		$	1,402	$	(435	)	$	(145	)
At or For the Six Months Ended June 30, 2018:
Asset (liability) balance, beginning of period	$	6		$	3,356		$	21,386		$	223	$	(615	)	$	63
Total net gains (losses) included in:
Net income	—			438			1,181			635		18			47
Other comprehensive income (loss)	—			—			769			—		—			—
Sales	—			(134,881		)	—			—		—			—
Originations	—			149,649			3,849			—		—			—
Principal paydowns / settlements	(2		)	(8		)	(7,298		)	—		156			—
Asset (liability) balance, end of period	$	4		$	18,554		$	19,887		$	858	$	(441	)	$	110

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Fair Value Option

TCF Home Loans, a division of TCF Bank, originates first mortgage lien loans in its primary banking markets and sells the loans through correspondent relationships. TCF elected the fair value option for these loans. This election facilitates the offsetting of changes in fair value of the loans held for sale and the derivative financial instruments used to economically hedge them. The difference between the aggregate fair value and aggregate unpaid principal balance of these loans held for sale was as follows:



(In thousands)	At June 30, 2019		At December 31, 2018
Fair value carrying amount	$	29,211	$	18,070
Aggregate unpaid principal amount	28,204		17,517
Fair value carrying amount less aggregate unpaid principal	$	1,007	$	553

Differences between the fair value carrying amount and the aggregate unpaid principal balance include changes in fair value recorded at and subsequent to funding and gains and losses on the related loan commitment prior to funding. No loans recorded under the fair value option were delinquent or on non-accrual status at June 30, 2019 and December 31, 2018. The net gain from initial measurement of the correspondent lending loans held for sale, any subsequent changes in fair value while the loans are outstanding and any actual adjustment to the gains realized upon sales of the loans totaled $3.7 million and $5.9 million for the second quarter and first six months of 2019, respectively, and $2.5 million and $4.2 million for the same periods in 2018, and are included in net gains on sales of loans. These amounts exclude the impacts from the interest rate lock commitments and forward loan sales commitments which are also included in net gains on sales of loans.

Disclosures About Fair Value of Financial Instruments

Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at June 30, 2019 and December 31, 2018 based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, given there is no active market or observable market transactions for many of the Company's financial instruments, the estimates of fair value are subjective in nature, involve uncertainties and include matters of significant judgment. Changes in assumptions could significantly affect the estimated values.

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The carrying amounts and estimated fair values of the Company's financial instruments, excluding short-term financial assets and liabilities as their carrying amounts approximate fair value and excluding financial instruments recorded at fair value on a recurring basis, were as follows. This information represents only a portion of TCF's Consolidated Statements of Financial Condition and not the estimated value of the Company as a whole. Non-financial instruments such as the intangible value of TCF's branches and core deposits, leasing operations, goodwill, premises and equipment and the future revenues from TCF's customers are not reflected in this disclosure. Therefore, this information is of limited use in assessing the value of TCF.



	At June 30, 2019
	Carrying			Estimated Fair Value
(In thousands)	Amount			Level 1		Level 2			Level 3		Total
Financial instrument assets:
Investments	$	105,659		$	—	$	105,659		$	—	$	105,659
Debt securities held to maturity	144,919			—		147,157			3,621		150,778
Loans held for sale	44,774			—		—			45,798		45,798
Loans:
Consumer real estate	5,293,165			—		—			5,385,743		5,385,743
Commercial real estate	3,262,288			—		—			3,220,395		3,220,395
Commercial business	923,523			—		—			892,509		892,509
Equipment finance	2,244,172			—		—			2,227,545		2,227,545
Inventory finance	3,404,214			—		—			3,387,976		3,387,976
Auto finance	1,456,138			—		—			1,427,066		1,427,066
Other	18,341			—		—			16,361		16,361
Allowance for loan losses⁽¹⁾	(146,503		)	—		—			—		—
Securitization receivable⁽²⁾	19,560			—		—			19,244		19,244
Total financial instrument assets	$	16,770,250		$	—	$	252,816		$	16,626,258	$	16,879,074
Financial instrument liabilities:
Deposits	$	19,112,387		$	14,507,060	$	4,644,408		$	—	$	19,151,468
Long-term borrowings	1,617,531			—		1,628,729			—		1,628,729
Total financial instrument liabilities	$	20,729,918		$	14,507,060	$	6,273,137		$	—	$	20,780,197
Financial instruments with off-balance sheet risk:⁽³⁾
Commitments to extend credit	$	18,772		$	—	$	18,772		$	—	$	18,772
Standby letters of credit	(35		)	—		(35		)	—		(35		)
Total financial instruments with off-balance sheet risk	$	18,737		$	—	$	18,737		$	—	$	18,737


(1)	Expected credit losses are included in the estimated fair values.


(2)	Carrying amounts are included in other assets.


(3)	Positive amounts represent assets, negative amounts represent liabilities.

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	At December 31, 2018
	Carrying			Estimated Fair Value
(In thousands)	Amount			Level 1		Level 2			Level 3		Total
Financial instrument assets:
Investments	$	91,654		$	—	$	91,654		$	—	$	91,654
Debt securities held to maturity	148,852			—		146,467			2,800		149,267
Loans held for sale	72,594			—		—			74,078		74,078
Loans:
Consumer real estate	5,410,340			—		—			5,461,209		5,461,209
Commercial real estate	2,908,147			—		—			2,872,829		2,872,829
Commercial business	943,156			—		—			890,828		890,828
Equipment finance	2,169,577			—		—			2,131,147		2,131,147
Inventory finance	3,107,356			—		—			3,091,593		3,091,593
Auto finance	1,982,277			—		—			1,935,017		1,935,017
Other	21,295			—		—			16,928		16,928
Allowance for loan losses⁽¹⁾	(157,446		)	—		—			—		—
Securitization receivable⁽²⁾	19,432			—		—			19,025		19,025
Total financial instrument assets	$	16,717,234		$	—	$	238,121		$	16,495,454	$	16,733,575
Financial instrument liabilities:
Deposits	$	18,903,686		$	14,113,006	$	4,820,442		$	—	$	18,933,448
Long-term borrowings	1,449,472			—		1,451,550			—		1,451,550
Total financial instrument liabilities	$	20,353,158		$	14,113,006	$	6,271,992		$	—	$	20,384,998
Financial instruments with off-balance sheet risk:⁽³⁾
Commitments to extend credit	$	18,555		$	—	$	18,555		$	—	$	18,555
Standby letters of credit	(77		)	—		(77		)	—		(77		)
Total financial instruments with off-balance sheet risk	$	18,478		$	—	$	18,478		$	—	$	18,478


(1)	Expected credit losses are included in the estimated fair values.


(2)	Carrying amounts are included in other assets.


(3)	Positive amounts represent assets, negative amounts represent liabilities.

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Note 15. Earnings Per Common Share

The computations of basic and diluted earnings per common share and the anti-dilutive shares outstanding not included in the computation of diluted earnings per share were as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except per share data)	2019		2018		2019		2018
Basic earnings per common share:
Net income attributable to TCF Financial Corporation	$	90,427	$	58,749	$	160,921	$	132,510
Preferred stock dividends	2,494		2,494		4,987		6,600
Impact of preferred stock redemption⁽¹⁾	—		—		—		3,481
Net income available to common stockholders	87,933		56,255		155,934		122,429
Less: Earnings allocated to participating securities	17		8		30		17
Earnings allocated to common stock	$	87,916	$	56,247	$	155,904	$	122,412

Weighted-average common shares outstanding used in basic earnings per common share calculation	161,973,864		165,728,591		161,919,867		167,110,343
Basic earnings per common share	$	0.54	$	0.34	$	0.96	$	0.73

Diluted earnings per common share:
Earnings allocated to common stock	$	87,916	$	56,247	$	155,904	$	122,412

Weighted-average common shares outstanding used in basic earnings per common share calculation	161,973,864		165,728,591		161,919,867		167,110,343
Net dilutive effect of:
Non-participating restricted stock	331,290		547,182		444,301		639,468
Stock options	—		—		—		4,742
Warrants	—		581,867		—		709,993
Weighted-average common shares outstanding used in diluted earnings per common share calculation	162,305,154		166,857,640		162,364,168		168,464,546
Diluted earnings per common share	$	0.54	$	0.34	$	0.96	$	0.73

Anti-dilutive shares outstanding not included in the computation of diluted earnings per common share:
Non-participating restricted stock	1,041,368		846,626		1,012,373		846,626


(1)	Represents the amount of deferred stock issuance costs originally recorded in preferred stock that were reclassified to retained earnings.

Note 16. Other Non-interest Expense

Other non-interest expense was as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018
Advertising and marketing	$	5,273	$	7,104	$	12,128	$	14,401
Outside processing	5,917		5,648		11,391		10,884
Professional fees	5,385		4,765		10,913		10,086
Card processing and issuance costs	4,183		4,212		8,691		8,669
Consumer Financial Protection Bureau and OCC settlement charge	—		32,000		—		32,000
Other	34,087		35,222		68,159		72,347
Total other non-interest expense	$	54,845	$	88,951	$	111,282	$	148,387

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Note 17. Reportable Segments

The Company's reportable segments are Consumer Banking, Wholesale Banking and Enterprise Services. Consumer Banking is comprised of all of the Company's consumer-facing businesses and includes retail banking, consumer real estate and other, and auto finance. Wholesale Banking is comprised of commercial banking, leasing and equipment finance, and inventory finance. Enterprise Services is comprised of (i) corporate treasury, which includes TCF's investment and borrowing portfolios and management of capital, debt and market risks; (ii) corporate functions, such as information technology, risk and credit management, bank operations, finance, investor relations, corporate development, internal audit, legal and human capital management that provide services to the operating segments; (iii) the Holding Company and (iv) eliminations.

TCF evaluates performance and allocates resources based on each reportable segment's net income or loss. The reportable segments follow GAAP as described in Note 1. Basis of Presentation, except for the accounting for intercompany interest income and interest expense, which are eliminated in consolidation and presenting net interest income on a fully tax-equivalent basis. TCF generally accounts for inter-segment sales and transfers at cost.

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Certain information for each of TCF's reportable segments, including reconciliations of TCF's consolidated totals, was as follows:



	At or For the Quarter Ended June 30, 2019
(In thousands)	Consumer Banking		Wholesale Banking			Enterprise Services			Consolidated
Interest income:
Loans and leases	$	100,909	$	179,576		$	(1,038	)	$	279,447
Debt securities available for sale	—		—			22,325			22,325
Debt securities held to maturity	—		27			897			924
Loans held for sale and other	1,378		147			2,722			4,247
Funds transfer pricing - credits	117,940		10,632			(128,572		)	—
Total interest income	220,227		190,382			(103,666		)	306,943
Interest expense:
Deposits	30,072		4,109			6,361			40,542
Borrowings	6,908		27,735			(18,566		)	16,077
Funds transfer pricing - charges	47,818		62,878			(110,696		)	—
Total interest expense	84,798		94,722			(122,901		)	56,619
Net interest income (expense)	135,429		95,660			19,235			250,324
Provision for credit losses	4,830		8,739			—			13,569
Net interest income (expense) after provision for credit losses	130,599		86,921			19,235			236,755
Non-interest income:
Leasing and equipment finance	—		42,126			—			42,126
Fees and service charges	29,720		2,757			—			32,477
Card revenue	15,612		20			—			15,632
ATM revenue	4,862		1			—			4,863
Gains on sales of loans, net	10,823		5			—			10,828
Servicing fee income	4,327		196			—			4,523
Gains (losses) on debt securities, net	—		—			1,066			1,066
Other	2,105		(204		)	35			1,936
Total non-interest income	67,449		44,901			1,101			113,451
Non-interest expense:
Compensation and employee benefits	50,555		24,157			39,657			114,369
Occupancy and equipment	26,699		4,680			10,449			41,828
Lease financing equipment depreciation	—		19,133			—			19,133
Foreclosed real estate and repossessed assets, net	2,733		1,356			(1,641		)	2,448
Merger-related expenses	111		31			4,084			4,226
Other	72,003		32,193			(49,351		)	54,845
Total non-interest expense	152,101		81,550			3,198			236,849
Income (loss) before income tax expense (benefit)	45,947		50,272			17,138			113,357
Income tax expense (benefit)	10,762		10,549			(1,997		)	19,314
Income (loss) after income tax expense (benefit)	35,185		39,723			19,135			94,043
Income attributable to non-controlling interest	—		3,616			—			3,616
Preferred stock dividends	—		—			2,494			2,494
Net income (loss) available to common stockholders	$	35,185	$	36,107		$	16,641		$	87,933
Revenues from external customers:
Interest income	$	102,287	$	178,712		$	25,944		$	306,943
Non-interest income	67,449		44,901			1,101			113,451
Total	$	169,736	$	223,613		$	27,045		$	420,394

Total assets	$	7,571,638	$	13,007,356		$	4,047,836		$	24,626,830

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	At or For the Quarter Ended June 30, 2018
(In thousands)	Consumer Banking		Wholesale Banking		Enterprise Services			Consolidated
Interest income:
Loans and leases	$	107,559	$	162,665	$	(944	)	$	269,280
Debt securities available for sale	—		—		12,516			12,516
Debt securities held to maturity	—		24		974			998
Loans held for sale and other	1,685		24		1,820			3,529
Funds transfer pricing - credits	100,307		8,180		(108,487		)	—
Total interest income	209,551		170,893		(94,121		)	286,323
Interest expense:
Deposits	18,415		1,797		3,741			23,953
Borrowings	11,282		20,887		(20,598		)	11,571
Funds transfer pricing - charges	40,399		49,838		(90,237		)	—
Total interest expense	70,096		72,522		(107,094		)	35,524
Net interest income (expense)	139,455		98,371		12,973			250,799
Provision for credit losses	10,889		3,347		—			14,236
Net interest income (expense) after provision for credit losses	128,566		95,024		12,973			236,563
Non-interest income:
Leasing and equipment finance	—		42,904		—			42,904
Fees and service charges	29,141		3,529		—			32,670
Card revenue	14,947		15		—			14,962
ATM revenue	4,933		—		—			4,933
Gains on sales of loans, net	7,192		—		—			7,192
Servicing fee income	7,046		438		—			7,484
Gains (losses) on debt securities, net	—		24		—			24
Other	3,102		477		355			3,934
Total non-interest income	66,361		47,387		355			114,103
Non-interest expense:
Compensation and employee benefits	52,677		23,199		44,699			120,575
Occupancy and equipment	26,248		5,046		9,417			40,711
Lease financing equipment depreciation	—		17,945		—			17,945
Foreclosed real estate and repossessed assets, net	3,289		568		—			3,857
Other	104,502		29,800		(45,351		)	88,951
Total non-interest expense	186,716		76,558		8,765			272,039
Income (loss) before income tax expense (benefit)	8,211		65,853		4,563			78,627
Income tax expense (benefit)	2,165		14,251		2			16,418
Income (loss) after income tax expense (benefit)	6,046		51,602		4,561			62,209
Income attributable to non-controlling interest	—		3,460		—			3,460
Preferred stock dividends	—		—		2,494			2,494
Net income (loss) available to common stockholders	$	6,046	$	48,142	$	2,067		$	56,255
Revenues from external customers:
Interest income	$	109,244	$	161,769	$	15,310		$	286,323
Non-interest income	66,361		47,387		355			114,103
Total	$	175,605	$	209,156	$	15,665		$	400,426

Total assets	$	8,251,761	$	11,899,208	$	3,033,493		$	23,184,462

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	At or For the Six Months Ended June 30, 2019
(In thousands)	Consumer Banking		Wholesale Banking			Enterprise Services			Consolidated
Interest income:
Loans and leases	$	206,668	$	354,421		$	(2,048	)	$	559,041
Debt securities available for sale	—		—			41,140			41,140
Debt securities held to maturity	—		49			1,410			1,459
Loans held for sale and other	3,047		289			5,212			8,548
Funds transfer pricing - credits	231,673		21,584			(253,257		)	—
Total interest income	441,388		376,343			(207,543		)	610,188
Interest expense:
Deposits	56,679		8,252			13,091			78,022
Borrowings	14,841		53,971			(37,877		)	30,935
Funds transfer pricing - charges	96,432		122,602			(219,034		)	—
Total interest expense	167,952		184,825			(243,820		)	108,957
Net interest income (expense)	273,436		191,518			36,277			501,231
Provision for credit losses	12,124		11,567			—			23,691
Net interest income (expense) after provision for credit losses	261,312		179,951			36,277			477,540
Non-interest income:
Leasing and equipment finance	—		83,265			—			83,265
Fees and service charges	57,514		6,287			—			63,801
Card revenue	29,838		37			—			29,875
ATM revenue	9,301		2			—			9,303
Gains on sales of loans, net	18,795		5			—			18,800
Servicing fee income	9,151		482			—			9,633
Gains (losses) on debt securities, net	—		4			1,513			1,517
Other	4,698		(505		)	90			4,283
Total non-interest income	129,297		89,577			1,603			220,477
Non-interest expense:
Compensation and employee benefits	102,333		51,847			81,746			235,926
Occupancy and equipment	53,117		9,607			20,841			83,565
Lease financing equipment depreciation	—		38,389			—			38,389
Foreclosed real estate and repossessed assets, net	6,477		2,242			(1,641		)	7,078
Merger-related expenses	111		31			13,542			13,684
Other	145,848		63,583			(98,149		)	111,282
Total non-interest expense	307,886		165,699			16,339			489,924
Income (loss) before income tax expense (benefit)	82,723		103,829			21,541			208,093
Income tax expense (benefit)	19,324		22,487			(1,210		)	40,601
Income (loss) after income tax expense (benefit)	63,399		81,342			22,751			167,492
Income attributable to non-controlling interest	—		6,571			—			6,571
Preferred stock dividends	—		—			4,987			4,987
Net income (loss) available to common stockholders	$	63,399	$	74,771		$	17,764		$	155,934
Revenues from external customers:
Interest income	$	209,715	$	352,711		$	47,762		$	610,188
Non-interest income	129,297		89,577			1,603			220,477
Total	$	339,012	$	442,288		$	49,365		$	830,665

Total assets	$	7,571,638	$	13,007,356		$	4,047,836		$	24,626,830

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	At or For the Six Months Ended June 30, 2018
(In thousands)	Consumer Banking		Wholesale Banking		Enterprise Services			Consolidated
Interest income:
Loans and leases	$	217,319	$	314,190	$	(1,854	)	$	529,655
Debt securities available for sale	—		—		22,639			22,639
Debt securities held to maturity	—		47		1,970			2,017
Loans held for sale and other	3,742		45		3,487			7,274
Funds transfer pricing - credits	196,889		15,928		(212,817		)	—
Total interest income	417,950		330,210		(186,575		)	561,585
Interest expense:
Deposits	36,270		3,231		6,962			46,463
Borrowings	23,689		38,285		(40,850		)	21,124
Funds transfer pricing - charges	78,628		94,723		(173,351		)	—
Total interest expense	138,587		136,239		(207,239		)	67,587
Net interest income (expense)	279,363		193,971		20,664			493,998
Provision for credit losses	19,778		5,826		—			25,604
Net interest income (expense) after provision for credit losses	259,585		188,145		20,664			468,394
Non-interest income:
Leasing and equipment finance	—		84,751		—			84,751
Fees and service charges	57,738		5,683		—			63,421
Card revenue	28,697		24		—			28,721
ATM revenue	9,582		1		—			9,583
Gains on sales of loans, net	16,315		—		—			16,315
Servicing fee income	14,972		807		—			15,779
Gains (losses) on debt securities, net	—		87		—			87
Other	6,167		1,084		399			7,650
Total non-interest income	133,471		92,437		399			226,307
Non-interest expense:
Compensation and employee benefits	107,907		47,487		89,021			244,415
Occupancy and equipment	52,116		9,953		19,156			81,225
Lease financing equipment depreciation	—		35,219		—			35,219
Foreclosed real estate and repossessed assets, net	7,548		1,218		7			8,773
Other	180,611		59,053		(91,277		)	148,387
Total non-interest expense	348,182		152,930		16,907			518,019
Income (loss) before income tax expense (benefit)	44,874		127,652		4,156			176,682
Income tax expense (benefit)	10,988		28,128		(1,067		)	38,049
Income (loss) after income tax expense (benefit)	33,886		99,524		5,223			138,633
Income attributable to non-controlling interest	—		6,123		—			6,123
Preferred stock dividends	—		—		6,600			6,600
Impact of notice to redeem preferred stock	—		—		3,481			3,481
Net income (loss) available to common stockholders	$	33,886	$	93,401	$	(4,858	)	$	122,429
Revenues from external customers:
Interest income	$	221,061	$	312,428	$	28,096		$	561,585
Non-interest income	133,471		92,437		399			226,307
Total	$	354,532	$	404,865	$	28,495		$	787,892

Total assets	$	8,251,761	$	11,899,208	$	3,033,493		$	23,184,462

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Note 18. Litigation Contingencies

From time to time TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to regulatory examinations and enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the Consumer Financial Protection Bureau 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.

As previously disclosed, in connection with TCF's planned merger with Chemical, purported stockholders of TCF filed five putative class action lawsuits and individual lawsuits against TCF and members of TCF's board of directors (collectively, the "Actions"). Three of these lawsuits were filed in the United States District Court for the District of Delaware: Wang v. TCF Financial Corporation et al., 1:19-cv-00661 (filed on April 9, 2019), Parshall v. TCF Financial Corporation et al., 1:19-cv-00663 (filed on April 10, 2019) and White v. TCF Financial Corporation et al., 1:19-cv-00683 (filed on April 12, 2019). One lawsuit was filed in the United States District Court for the Southern District of New York: Harrelson v. TCF Financial Corporation et al., 1:19-cv-03183 (filed on April 10, 2019). And one lawsuit was filed in the Delaware Court of Chancery: Nelson v. TCF Financial Corporation et al., 2019-0335-JTL (filed on May 6, 2019). In general, the Actions asserted claims against TCF and TCF's board of directors, alleging, among other things, that the defendants misstated or failed to disclose certain allegedly material information in the definitive joint proxy statement/prospectus relating to the merger that Chemical and TCF filed with the SEC on May 3, 2019.

TCF believes that the allegations in the Actions were without merit; however, to avoid the costs, risks, nuisance and uncertainties inherent in litigation, TCF voluntarily provided supplemental disclosures related to the merger as set forth in TCF's Current Report on Form 8-K dated May 28, 2019. Plaintiffs in the Actions dismissed their respective complaints with prejudice as to their individual claims and without prejudice to the claims of the members of the putative class. In dismissing the Actions, plaintiffs reserved the right to seek an award of attorneys' fees from the court.

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Note 19. Accumulated Other Comprehensive Income (Loss)

The components of other comprehensive income (loss), reclassifications from accumulated other comprehensive income (loss) to various financial statement line items and the related tax effects were as follows:



	Quarter Ended June 30,
	2019									2018
(In thousands)	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Net unrealized gains (losses) on debt securities available for sale and interest-only strips:
Net unrealized gains (losses) arising during the period	$	41,399		$	(10,077	)	$	31,322		$	(6,543	)	$	1,634		$	(4,909	)
Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
Total interest income	281			(69		)	212			271			(68		)	203
Gains (losses) on debt securities, net	(1,066		)	259			(807		)	—			—			—
Other non-interest expense	(135		)	33			(102		)	(132		)	32			(100		)
Amounts reclassified from accumulated other comprehensive income (loss)	(920		)	223			(697		)	139			(36		)	103
Net unrealized gains (losses) on debt securities available for sale and interest-only strips	40,479			(9,854		)	30,625			(6,404		)	1,598			(4,806		)
Net unrealized gains (losses) on net investment hedges	(2,881		)	702			(2,179		)	5,037			(1,258		)	3,779
Foreign currency translation adjustment⁽¹⁾	3,415			—			3,415			(4,925		)	—			(4,925		)
Recognized postretirement prior service cost:
Reclassification of amortization of prior service cost to Other non-interest expense	(11		)	3			(8		)	(11		)	3			(8		)
Total other comprehensive income (loss)	$	41,002		$	(9,149	)	$	31,853		$	(6,303	)	$	343		$	(5,960	)

	Six Months Ended June 30,
	2019									2018
(In thousands)	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Net unrealized gains (losses) on debt securities available for sale and interest-only strips:
Net unrealized gains (losses) arising during the period	$	90,027		$	(21,913	)	$	68,114		$	(44,435	)	$	11,172		$	(33,263	)
Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
Total interest income	1,651			(402		)	1,249			547			(137		)	410
Gains (losses) on debt securities, net	(1,513		)	368			(1,145		)	—			—			—
Other non-interest expense	(297		)	72			(225		)	305			(77		)	228
Amounts reclassified from accumulated other comprehensive income (loss)	(159		)	38			(121		)	852			(214		)	638
Net unrealized gains (losses) on debt securities available for sale and interest-only strips	89,868			(21,875		)	67,993			(43,583		)	10,958			(32,625		)
Net unrealized gains (losses) on net investment hedges	(5,931		)	1,444			(4,487		)	7,174			(1,791		)	5,383
Foreign currency translation adjustment⁽¹⁾	6,982			—			6,982			(7,035		)	—			(7,035		)
Recognized postretirement prior service cost:
Reclassification of amortization of prior service cost to Other non-interest expense	(23		)	7			(16		)	(23		)	6			(17		)
Total other comprehensive income (loss)	$	90,896		$	(20,424	)	$	70,472		$	(43,467	)	$	9,173		$	(34,294	)


(1)	Foreign investments are deemed to be permanent in nature and, therefore, TCF does not provide for taxes on foreign currency translation adjustments.

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The components of accumulated other comprehensive income (loss) were as follows:



(In thousands)	Net Unrealized Gains (Losses) on Debt Securities Available for Sale and Interest-only Strips			Net Unrealized Gains (Losses) on Net Investment Hedges			Foreign Currency Translation Adjustment			Recognized Postretirement Prior Service Cost			Total
At or For the Quarter Ended June 30, 2019:
Balance, beginning of period	$	9,346		$	12,678		$	(16,644	)	$	101		$	5,481
Other comprehensive income (loss)	31,322			(2,179		)	3,415			—			32,558
Amounts reclassified from accumulated other comprehensive income (loss)	(697		)	—			—			(8		)	(705		)
Net other comprehensive income (loss)	30,625			(2,179		)	3,415			(8		)	31,853
Balance, end of period	$	39,971		$	10,499		$	(13,229	)	$	93		$	37,334
At or For the Quarter Ended June 30, 2018:
Balance, beginning of period	$	(44,172	)	$	6,140		$	(8,953	)	$	134		$	(46,851	)
Other comprehensive income (loss)	(4,909		)	3,779			(4,925		)	—			(6,055		)
Amounts reclassified from accumulated other comprehensive income (loss)	103			—			—			(8		)	95
Net other comprehensive income (loss)	(4,806		)	3,779			(4,925		)	(8		)	(5,960		)
Balance, end of period	$	(48,978	)	$	9,919		$	(13,878	)	$	126		$	(52,811	)

(In thousands)	Net Unrealized Gains (Losses) on Debt Securities Available for Sale and Interest-only Strips			Net Unrealized Gains (Losses) on Net Investment Hedges			Foreign Currency Translation Adjustment			Recognized Postretirement Prior Service Cost			Total
At or For the Six Months Ended June 30, 2019:
Balance, beginning of period	$	(28,022	)	$	14,986		$	(20,211	)	$	109		$	(33,138	)
Other comprehensive income (loss)	68,114			(4,487		)	6,982			—			70,609
Amounts reclassified from accumulated other comprehensive income (loss)	(121		)	—			—			(16		)	(137		)
Net other comprehensive income (loss)	67,993			(4,487		)	6,982			(16		)	70,472
Balance, end of period	$	39,971		$	10,499		$	(13,229	)	$	93		$	37,334
At or For the Six Months Ended June 30, 2018:
Balance, beginning of period	$	(16,353	)	$	4,536		$	(6,843	)	$	143		$	(18,517	)
Other comprehensive income (loss)	(33,263		)	5,383			(7,035		)	—			(34,915		)
Amounts reclassified from accumulated other comprehensive income (loss)	638			—			—			(17		)	621
Net other comprehensive income (loss)	(32,625		)	5,383			(7,035		)	(17		)	(34,294		)
Balance, end of period	$	(48,978	)	$	9,919		$	(13,878	)	$	126		$	(52,811	)

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 June 30, 2019, TCF Bank operated 312 bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota (TCF's "primary banking markets"). Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer banking services, commercial banking services, commercial leasing and equipment financing, and commercial inventory financing.

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 primarily 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 68.8% and 69.5% of TCF's total revenue for the second quarter and first six months of 2019, respectively, compared with 68.7% and 68.6% for the same periods in 2018. 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 3. 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 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.

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 the second quarter and first six months of 2019 and 2018 and on information about TCF's financial condition, loan and lease portfolio, liquidity, funding resources, capital and other matters.

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Proposed Merger with Chemical Financial Corporation On January 27, 2019, TCF entered into an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Financial Corporation ("Chemical"), a financial holding company headquartered in Detroit, Michigan, with $22.5 billion in assets at June 30, 2019. Upon closing of the merger, Chemical will continue as the surviving company and will be renamed TCF Financial Corporation. All shares of its common and preferred stock will be listed on the NASDAQ Stock Market^®.All regulatory and shareholder approvals for the merger have been received by TCF and Chemical and the merger is expected to close on August 1, 2019, subject to the satisfaction of customary closing conditions. Under the terms of the Merger Agreement, 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.

Results of Operations

Performance Summary TCF reported net income of $90.4 million and $160.9 million for the second quarter and first six months of 2019, respectively, compared with $58.7 million and $132.5 million for the same periods in 2018. TCF reported diluted earnings per common share of 54 cents and 96 cents for the second quarter and first six months of 2019, respectively, compared with 34 cents and 73 cents for the same periods in 2018. Diluted earnings per common share for both the second quarter and first six months of 2019 were impacted by merger-related expenses of 2 cents and 6 cents per common share, respectively, related to the proposed merger with Chemical. Diluted earnings per common share for both the second quarter and first six months of 2018 were impacted by a charge of 15 cents per common share related to the settlement with the Consumer Financial Protection Bureau (the "CFPB") and Office of the Comptroller of the Currency (the "OCC"). Additionally, diluted earnings per common share for the first six months of 2018 was impacted by a one-time reduction in net income available to common stockholders in the amount of 2 cents per common share related to the redemption of the 6.45% Series B non-cumulative perpetual preferred stock on March 1, 2018.

Return on average assets on a fully tax-equivalent basis was 1.54% and 1.38% for the second quarter and first six months of 2019, respectively, compared with 1.08% and 1.20% for the same periods in 2018. Return on average common equity ("ROACE") was 14.27% and 12.86% for the second quarter and first six months of 2019, respectively, compared with 9.72% and 10.48% for the same periods in 2018. Return on average tangible common equity ("ROATCE") was 15.46% and 13.96% for the second quarter and first six months of 2019, respectively, compared with 10.65% and 11.46% for the same periods in 2018. Adjusted ROATCE, which excludes merger-related expenses for the second quarter and first six months of 2019 and the settlement with the CFPB and OCC for the second quarter and first six months of 2018, was 16.02% and 14.89% for the second quarter and first six months of 2019, respectively, compared with 15.39% and 13.81% for the same periods in 2018. See "Consolidated Financial Condition Analysis — Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

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Consolidated Income Statement Analysis

Net Interest Income Net interest income was $250.3 million and $501.2 million for the second quarter and first six months of 2019, respectively, compared with $250.8 million and $494.0 million for the same periods in 2018. Net interest income represented 68.8% and 69.5% of TCF's total revenue for the second quarter and first six months of 2019, respectively, compared with 68.7% and 68.6% for the same periods in 2018. Interest income was $306.9 million and $610.2 million for the second quarter and first six months of 2019, respectively, compared with $286.3 million and $561.6 million for the same periods in 2018. The increases from both periods were primarily due to higher average balances and increased average yields on the variable- and adjustable rate loan portfolios and debt securities available for sale portfolio, and higher average balances of fixed-rate consumer real estate loans, partially offset by lower average balances of auto finance loans. Interest expense was $56.6 million and $109.0 million for the second quarter and first six months of 2019, respectively, compared with $35.5 million and $67.6 million for the same periods in 2018. The increases from both periods were primarily due to increased interest rates.

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 4.43% and 4.49% for the second quarter and first six months of 2019, respectively, compared with 4.67% and 4.63% for the same periods in 2018. The decreases from both periods were primarily due to higher average rates on deposits, partially offset by higher average yields on the variable- and adjustable-rate loan portfolios. The decreases were also impacted by the partial reinvestment of the auto finance portfolio run-off into the available for sale mortgage-backed debt securities portfolio.

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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:



	Quarter Ended June 30,
	2019						2018
(Dollars in thousands)	Average Balance		Interest⁽¹⁾		Yields and Rates⁽¹⁾⁽²⁾		Average Balance		Interest⁽¹⁾		Yields and Rates⁽¹⁾⁽²⁾
Assets:
Investments and other	$	392,193	$	3,651	3.71	%	$	309,120	$	2,857	3.71	%
Debt securities held to maturity	146,296		924		2.53		155,779		998		2.56
Debt securities available for sale:
Taxable	2,711,984		21,117		3.11		1,262,642		8,163		2.59
Tax-exempt⁽³⁾	222,534		1,530		2.75		828,131		5,510		2.66
Loans and leases held for sale	40,835		596		5.86		45,525		672		5.93
Loans and leases:⁽⁴⁾
Consumer real estate:
Fixed-rate	2,349,154		29,159		4.97		1,715,289		23,612		5.52
Variable- and adjustable-rate	2,985,714		50,673		6.81		3,026,310		48,331		6.41
Total consumer real estate	5,334,868		79,832		6.00		4,741,599		71,943		6.09
Commercial:
Fixed-rate	817,744		9,013		4.42		900,462		10,087		4.49
Variable- and adjustable-rate	3,168,127		44,843		5.68		2,802,059		38,044		5.45
Total commercial	3,985,871		53,856		5.42		3,702,521		48,131		5.21
Leasing and equipment finance	4,743,747		60,554		5.11		4,639,703		57,236		4.93
Inventory finance	3,588,051		64,967		7.26		3,299,996		57,138		6.94
Auto finance	1,575,715		21,121		5.38		2,695,943		35,632		5.30
Other	10,918		131		4.78		13,845		143		4.10
Total loans and leases	19,239,170		280,461		5.84		19,093,607		270,223		5.67
Total interest-earning assets	22,753,012		308,279		5.43		21,694,804		288,423		5.33
Other assets	1,730,810						1,430,621
Total assets	$	24,483,822					$	23,125,425
Liabilities and Equity:
Non-interest bearing deposits	$	3,980,811					$	3,879,048
Interest-bearing deposits:
Checking	2,479,814		440		0.07		2,460,709		119		0.02
Savings	6,452,510		12,314		0.77		5,542,565		3,736		0.27
Money market	1,430,556		4,588		1.29		1,572,560		2,620		0.67
Certificates of deposit	4,527,822		23,200		2.05		4,909,422		17,478		1.43
Total interest-bearing deposits	14,890,702		40,542		1.09		14,485,256		23,953		0.66
Total deposits	18,871,513		40,542		0.86		18,364,304		23,953		0.52
Borrowings:
Short-term borrowings	321,043		2,131		2.63		3,116		18		2.33
Long-term borrowings	1,657,527		13,946		3.34		1,531,389		11,553		3.02
Total borrowings	1,978,570		16,077		3.23		1,534,505		11,571		3.02
Total interest-bearing liabilities	16,869,272		56,619		1.34		16,019,761		35,524		0.89
Total deposits and borrowings	20,850,083		56,619		1.09		19,898,809		35,524		0.72
Accrued expenses and other liabilities	969,723						714,488
Total liabilities	21,819,806						20,613,297
Total TCF Financial Corporation stockholders' equity	2,634,386						2,483,474
Non-controlling interest in subsidiaries	29,630						28,654
Total equity	2,664,016						2,512,128
Total liabilities and equity	$	24,483,822					$	23,125,425
Net interest income and margin			$	251,660	4.43				$	252,899	4.67


(1)	Interest and yields are presented on a fully tax-equivalent basis.


(2)	Annualized


(3)	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%.


(4)	Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.

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	Six Months Ended June 30,
	2019						2018
(Dollars in thousands)	Average Balance		Interest⁽¹⁾		Yields and Rates⁽¹⁾⁽²⁾		Average Balance		Interest⁽¹⁾		Yields and Rates⁽¹⁾⁽²⁾
Assets:
Investments and other	$	379,513	$	7,132	3.77	%	$	320,655	$	5,633	3.54	%
Debt securities held to maturity	146,922		1,459		1.99		157,450		2,017		2.56
Debt securities available for sale:
Taxable	2,418,221		37,248		3.08		1,123,017		13,976		2.49
Tax-exempt⁽³⁾	368,952		4,927		2.67		824,906		10,966		2.66
Loans and leases held for sale	47,980		1,416		5.94		54,261		1,641		6.09
Loans and leases:⁽⁴⁾
Consumer real estate:
Fixed-rate	2,350,946		59,046		5.05		1,750,765		48,225		5.55
Variable- and adjustable-rate	3,013,329		102,360		6.85		3,019,212		94,212		6.29
Total consumer real estate	5,364,275		161,406		6.06		4,769,977		142,437		6.02
Commercial:
Fixed-rate	817,498		18,077		4.46		915,784		20,684		4.55
Variable- and adjustable-rate	3,090,597		88,375		5.77		2,736,267		71,204		5.25
Total commercial	3,908,095		106,452		5.49		3,652,051		91,888		5.07
Leasing and equipment finance	4,699,969		119,775		5.10		4,665,144		113,643		4.87
Inventory finance	3,521,537		127,832		7.32		3,214,618		108,333		6.80
Auto finance	1,707,690		45,336		5.35		2,857,169		74,917		5.29
Other	11,298		264		4.69		14,145		290		4.13
Total loans and leases	19,212,864		561,065		5.88		19,173,104		531,508		5.58
Total interest-earning assets	22,574,452		613,247		5.46		21,653,393		565,741		5.26
Other assets	1,721,970						1,442,117
Total assets	$	24,296,422					$	23,095,510
Liabilities and Equity:
Non-interest bearing deposits	$	3,950,447					$	3,812,765
Interest-bearing deposits:
Checking	2,468,852		827		0.07		2,461,126		232		0.02
Savings	6,353,800		22,984		0.73		5,469,523		6,901		0.25
Money market	1,460,427		9,041		1.25		1,634,965		5,029		0.62
Certificates of deposit	4,574,710		45,170		1.99		4,953,533		34,301		1.40
Total interest-bearing deposits	14,857,789		78,022		1.06		14,519,147		46,463		0.65
Total deposits	18,808,236		78,022		0.84		18,331,912		46,463		0.51
Borrowings:
Short-term borrowings	307,347		4,088		2.65		3,532		37		2.14
Long-term borrowings	1,579,613		26,847		3.39		1,477,531		21,087		2.87
Total borrowings	1,886,960		30,935		3.27		1,481,063		21,124		2.87
Total interest-bearing liabilities	16,744,749		108,957		1.31		16,000,210		67,587		0.85
Total deposits and borrowings	20,695,196		108,957		1.06		19,812,975		67,587		0.69
Accrued expenses and other liabilities	979,359						736,201
Total liabilities	21,674,555						20,549,176
Total TCF Financial Corp. stockholders' equity	2,594,778						2,520,396
Non-controlling interest in subsidiaries	27,089						25,938
Total equity	2,621,867						2,546,334
Total liabilities and equity	$	24,296,422					$	23,095,510
Net interest income and margin			$	504,290	4.49				$	498,154	4.63


(1)	Interest and yields are presented on a fully tax-equivalent basis.


(2)	Annualized


(3)	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%.


(4)	Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.

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Provision for Credit Losses The provision for credit losses was $13.6 million and $23.7 million for the second quarter and first six months of 2019, respectively, compared with $14.2 million and $25.6 million for the same periods in 2018. The decrease from the second quarter of 2018 was primarily due to a decrease in the provision for credit losses attributable to the auto finance portfolio, partially offset by increases in the provision for credit losses attributable to the commercial and leasing and equipment finance portfolios. The decrease from the first six months of 2018 was primarily due to decreases in the provision for credit losses attributable to the auto finance and commercial portfolios, partially offset by increases in the provision for credit losses attributable to the inventory finance and leasing and equipment finance portfolios. The provision for credit losses is predominantly a function of TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses, which is a critical accounting estimate. TCF's evaluation of incurred losses is based on historical loss rates multiplied by the respective portfolio's loss emergence period. Factors utilized in the determination and allocation of the allowance for loan and lease losses and the related provision for credit losses include historical trends in loss rates, a portfolio's overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values, economic outlook and prevailing economic conditions.

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

Non-interest Income The components of non-interest income were as follows:



	Quarter Ended June 30,						Change
(Dollars in thousands)	2019			2018			$			% / bps
Leasing and equipment finance	$	42,126		$	42,904		$	(778	)	(1.8	)%
Fees and service charges	32,477			32,670			(193		)	(0.6	)
Card revenue	15,632			14,962			670			4.5
ATM revenue	4,863			4,933			(70		)	(1.4	)
Gains on sales of loans, net	10,828			7,192			3,636			50.6
Servicing fee income	4,523			7,484			(2,961		)	(39.6	)
Gains (losses) on debt securities, net	1,066			24			1,042			N.M.
Other	1,936			3,934			(1,998		)	(50.8	)
Total non-interest income	$	113,451		$	114,103		$	(652	)	(0.6	)
Total non-interest income as a percentage of total revenue	31.2		%	31.3		%				(10) bps

	Six Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$			%
Leasing and equipment finance	$	83,265		$	84,751		$	(1,486	)	(1.8	)%
Fees and service charges	63,801			63,421			380			0.6
Card revenue	29,875			28,721			1,154			4.0
ATM revenue	9,303			9,583			(280		)	(2.9	)
Gains on sales of loans, net	18,800			16,315			2,485			15.2
Servicing fee income	9,633			15,779			(6,146		)	(39.0	)
Gains (losses) on debt securities, net	1,517			87			1,430			N.M.
Other	4,283			7,650			(3,367		)	(44.0	)
Total non-interest income	$	220,477		$	226,307		$	(5,830	)	(2.6	)
Total non-interest income as a percentage of total revenue	30.5		%	31.4		%				(90) bps

N.M. Not Meaningful

Gains on Sales of Loans, Net Net gains on sales of loans were $10.8 million and $18.8 million for the second quarter and first six months of 2019, respectively, compared with $7.2 million and $16.3 million for the same periods in 2018. The increases from both periods were primarily due to higher volume of consumer real estate loans sold. TCF sold $280.7 million and $499.8 million of consumer real estate loans during the second quarter and first six months of 2019, respectively, compared with $181.7 million and $448.0 million during the same periods in 2018.

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Servicing Fee Income Servicing fee income was $4.5 million on $3.2 billion of average loans and leases serviced for others and $9.6 million on $3.3 billion of average loans and leases serviced for others for the second quarter and first six months of 2019, respectively, compared with $7.5 million on $4.1 billion of average loans and leases serviced for others and $15.8 million on $4.3 billion of average loans and leases serviced for others for the same periods in 2018. The decreases from both periods were primarily due to continued run-off in the auto finance serviced for others portfolio.

Gains (Losses) on Debt Securities, Net Net gains on debt securities were $1.1 million and $1.5 million for the second quarter and first six months of 2019, respectively, compared with $24 thousand and $87 thousand for the same periods in 2018. During the second quarter and first six months of 2019, TCF sold $201.3 million and $406.7 million, respectively, of obligations of states and political subdivisions debt securities available for sale and recognized net gains of $1.1 million and $1.5 million, respectively. There were no sales of debt securities available for sale during the second quarter and first six months of 2018. The net gains on debt securities for the first six months of 2019 and 2018 also included recoveries on previously impaired debt securities held to maturity.

Non-interest Expense The components of non-interest expense were as follows:



	Quarter Ended June 30,						Change
(Dollars in thousands)	2019			2018			$			% / bps
Compensation and employee benefits	$	114,369		$	120,575		$	(6,206	)	(5.1	)	%
Occupancy and equipment	41,828			40,711			1,117			2.7
Lease financing equipment depreciation	19,133			17,945			1,188			6.6
Foreclosed real estate and repossessed assets, net	2,448			3,857			(1,409		)	(36.5	)
Merger-related expenses	4,226			—			4,226			N.M.
Other	54,845			88,951			(34,106		)	(38.3	)
Total non-interest expense	$	236,849		$	272,039		$	(35,190	)	(12.9	)
Efficiency ratio	65.11		%	74.55		%				(944	)	bps
Adjusted efficiency ratio⁽¹⁾	63.95			65.78						(183	)

	Six Months Ended June 30,						Change
(Dollars in thousands)	2019			2018			$			%
Compensation and employee benefits	$	235,926		$	244,415		$	(8,489	)	(3.5	)	%
Occupancy and equipment	83,565			81,225			2,340			2.9
Lease financing equipment depreciation	38,389			35,219			3,170			9.0
Foreclosed real estate and repossessed assets, net	7,078			8,773			(1,695		)	(19.3	)
Merger-related expenses	13,684			—			13,684			N.M.
Other	111,282			148,387			(37,105		)	(25.0	)
Total non-interest expense	$	489,924		$	518,019		$	(28,095	)	(5.4	)
Efficiency ratio	67.88		%	71.92		%				(404	)	bps
Adjusted efficiency ratio⁽¹⁾	65.99			67.47						(148	)

N.M. Not Meaningful


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

Compensation and Employee Benefits Expense Compensation and employee benefits expense was $114.4 million and $235.9 million for the second quarter and first six months of 2019, respectively, compared with $120.6 million and $244.4 million for the same periods in 2018. The decrease from the second quarter of 2018 was primarily due to lower commissions, insurance expense and incentive compensation. The decrease from the first six months of 2018 was primarily due to lower incentive compensation and commissions.

Lease Financing Equipment Depreciation Lease financing equipment depreciation was $19.1 million and $38.4 million for the second quarter and first six months of 2019, respectively, compared with $17.9 million and $35.2 million for the same periods in 2018. The increases from both periods were primarily due to higher balances of leased equipment.

Merger-related Expenses Merger-related expenses for the proposed merger with Chemical were $4.2 million and $13.7 million for the second quarter and first six months of 2019, respectively, and consisted primarily of professional fees, legal and severance expenses.

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Other Non-interest Expense Other non-interest expense was $54.8 million and $111.3 million for the second quarter and first six months of 2019, respectively, compared with $89.0 million and $148.4 million for the same periods in 2018. The decreases from both periods were primarily due to the $32.0 million settlement with the CFPB and OCC in the second quarter of 2018 and lower advertising and marketing expense and FDIC insurance expense. See Note 16. Other Non-interest Expense of Notes to Consolidated Financial Statements for further information.

Income Taxes Income tax expense was $19.3 million, or 17.0% of income before income tax expense, and $40.6 million, or 19.5% of income before income tax expense, for the second quarter and first six months of 2019, respectively, compared with $16.4 million, or 20.9% of income before income tax expense, and $38.0 million, or 21.5% of income before income tax expense, for the same periods in 2018. The lower effective tax rates for the second quarter and first six months of 2019 were impacted by favorable state tax examination developments.

Reportable Segment Results The Company's reportable segments are Consumer Banking, Wholesale Banking and Enterprise Services. See Note 17. Reportable Segments of Notes to Consolidated Financial Statements for further information regarding net income (loss), revenues and assets for each of TCF's reportable segments.

Consumer Banking

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

Consumer Banking generated net income available to common stockholders of $35.2 million and $63.4 million for the second quarter and first six months of 2019, respectively, compared with $6.0 million and $33.9 million for the same periods in 2018. The increases in net income available to common stockholders from both periods were primarily due to the $32.0 million settlement with the CFPB and OCC in the second quarter of 2018.

Consumer Banking net interest income was $135.4 million and $273.4 million for the second quarter and first six months of 2019, respectively, compared with $139.5 million and $279.4 million for the same periods in 2018. The decreases in net interest income from both periods were primarily due to lower average balances of auto finance loans and increased cost of deposits, partially offset by higher net funds transfer pricing credits, higher average balances of fixed-rate consumer real estate loans, lower interest expense on inter-company borrowings and increased average yields on the variable- and adjustable-rate consumer real estate portfolio.

Consumer Banking provision for credit losses was $4.8 million and $12.1 million for the second quarter and first six months of 2019, respectively, compared with $10.9 million and $19.8 million for the same periods in 2018. The decreases in the provision for credit losses from both periods were primarily due to decreases in the provision for credit losses attributable to the auto finance portfolio. The provision for credit losses is predominantly a function of TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses. For further information, see "Consolidated Income Statement Analysis — Provision for Credit Losses" and "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements.

Consumer Banking non-interest income was $67.4 million and $129.3 million for the second quarter and first six months of 2019, respectively, compared with $66.4 million and $133.5 million for the same periods in 2018. The increase in non-interest income from the second quarter of 2018 was primarily due to increased net gains on sales of loans primarily due to higher volume of consumer real estate loans sold, partially offset by decreased servicing fee income due to continued run-off in the auto finance serviced for others portfolio. The decrease in non-interest income from the first six months of 2018 was primarily due to decreased servicing fee income due to continued run-off in the auto finance serviced for others portfolio, partially offset by increased net gains on sales of loans primarily due to higher volume of consumer real estate loans sold. Servicing fee income attributable to the Consumer Banking segment was $4.3 million and $9.2 million for the second quarter and first six months of 2019, respectively, compared with $7.0 million and $15.0 million for the same periods in 2018. Average Consumer Banking loans serviced for others were $2.7 billion and $2.8 billion for the second quarter and first six months of 2019, respectively, compared with $3.7 billion and $3.9 billion for the same periods in 2018.

Table of Contents

Consumer Banking non-interest expense was $152.1 million and $307.9 million for the second quarter and first six months of 2019, respectively, compared with $186.7 million and $348.2 million for the same periods in 2018. The decreases in non-interest expense from both periods were primarily due to the $32.0 million settlement with the CFPB and OCC in the second quarter of 2018, decreased compensation and employee benefits expense due to reduced headcount in the auto finance business, as well as lower advertising and marketing expense and FDIC insurance expense.

Wholesale Banking

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

Wholesale Banking generated net income available to common stockholders of $36.1 million and $74.8 million for the second quarter and first six months of 2019, respectively, compared with $48.1 million and $93.4 million for the same periods in 2018.

Wholesale Banking net interest income was $95.7 million and $191.5 million for the second quarter and first six months of 2019, respectively, compared with $98.4 million and $194.0 million for the same periods in 2018. The decreases in net interest income from both periods were primarily due to higher net funds transfer pricing charges and higher interest expense on inter-company borrowings, partially offset by higher average balances and increased average yields on the variable- and adjustable-rate wholesale loan portfolios.

Wholesale Banking provision for credit losses was $8.7 million and $11.6 million for the second quarter and first six months of 2019, respectively, compared with $3.3 million and $5.8 million for the same periods in 2018. The increase in the provision for credit losses from the second quarter of 2018 was primarily due to increases in the provision for credit losses attributable to the commercial and leasing and equipment finance portfolios. The increase in the provision for credit losses from the first six months of 2018 was primarily due to increases in the provision for credit losses attributable to the inventory finance and leasing and equipment finance portfolios, partially offset by a decrease in the provision for credit losses attributable to the commercial portfolio. The provision for credit losses is predominantly a function of TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses. For further information, see "Consolidated Income Statement Analysis — Provision for Credit Losses" and "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements.

Wholesale Banking non-interest income was $44.9 million and $89.6 million for the second quarter and first six months of 2019, respectively, compared with $47.4 million and $92.4 million for the same periods in 2018. The decreases in non-interest income from both periods were primarily due to decreased leasing and equipment finance non-interest income.

Wholesale Banking non-interest expense was $81.6 million and $165.7 million for the second quarter and first six months of 2019, respectively, compared with $76.6 million and $152.9 million for the same periods in 2018. The increase in non-interest expense from the second quarter of 2018 was primarily due to higher allocations of other non-interest expense from the Enterprise Services segment, an increase in severance expense and an increase in lease financing equipment depreciation as a result of higher balances of leased equipment. The increase in non-interest expense from the first six months of 2018 was primarily due to increased compensation and employee benefits expense driven by higher salaries, higher allocations of other non-interest expense from the Enterprise Services segment and an increase in lease financing equipment depreciation as a result of higher balances of leased equipment.

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.

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Enterprise Services generated net income available to common stockholders of $16.6 million and $17.8 million for the second quarter and first six months of 2019, respectively, compared with net income available to common stockholders of $2.1 million and net loss available to common stockholders of $4.9 million for the same periods in 2018.

Enterprise Services net interest income was $19.2 million and $36.3 million for the second quarter and first six months of 2019, respectively, compared with $13.0 million and $20.7 million for the same periods in 2018. The increases in net interest income from both periods were primarily due to higher average balances and increased average yields on the debt securities available for sale portfolio, partially offset by increased cost of funds. The increase in net interest income from the first six months of 2018 was also due to higher net funds transfer pricing credits.

Enterprise Services non-interest expense was $3.2 million and $16.3 million for the second quarter and first six months of 2019, respectively, compared with $8.8 million and $16.9 million for the same periods in 2018. The decreases in non-interest expense from both periods were primarily due to decreased compensation and employee benefits expense and higher allocations of other non-interest expense to the Wholesale Banking segment, partially offset by merger-related expenses of $4.1 million and $13.5 million for the second quarter and first six months of 2019, respectively. The decrease in compensation and employee benefits expense from the second quarter of 2018 was primarily due to lower insurance expense, lower salary expense and lower incentive compensation. The decrease in compensation and employee benefits expense from the first six months of 2018 was primarily due to lower incentive compensation and lower salary expense.

Consolidated Financial Condition Analysis

Debt Securities Available for Sale and Debt Securities Held to Maturity Total debt securities available for sale were $3.1 billion at June 30, 2019, compared with $2.5 billion at December 31, 2018. TCF's debt securities available for sale portfolio consists primarily of fixed-rate mortgage-backed securities issued by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation, and obligations of states and political subdivisions. The increase in debt securities available for sale was primarily due to the reinvestment of lower yielding obligations of states and political subdivisions into higher yielding fixed-rate mortgage-backed debt securities and the partial reinvestment of the auto finance loan portfolio run-off into the available for sale mortgage-backed debt securities portfolio. TCF may, from time to time, sell debt securities available for sale and utilize the proceeds to reinvest into higher yielding debt securities, reduce borrowings, fund growth in loans and leases or for other corporate purposes. TCF sold $201.3 million and $406.7 million of obligations of states and political subdivisions during the second quarter and first six months of 2019, respectively. There were no sales of debt securities available for sale during the second quarter and first six months of 2018.

Total debt securities held to maturity were $144.9 million at June 30, 2019, compared with $148.9 million at December 31, 2018. TCF's debt securities held to maturity portfolio consists primarily of fixed-rate mortgage-backed securities issued by the FNMA.

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The amortized cost, fair value and fully tax-equivalent yield of debt securities available for sale and debt securities held to maturity by final contractual maturity were as follows. The final contractual maturities do not consider possible prepayments and therefore expected maturities may differ because borrowers may have the right to prepay.



	At June 30, 2019						At December 31, 2018
(Dollars in thousands)	Amortized Cost		Fair Value		Tax-equivalent Yield		Amortized Cost		Fair Value		Tax-equivalent Yield
Debt securities available for sale:
Mortgage-backed securities:
Due in 1-5 years	$	14,616	$	14,556	1.94	%	$	10,105	$	10,033	2.04	%
Due in 5-10 years	206,972		212,578		2.56		210,522		208,514		2.54
Due after 10 years	2,671,584		2,722,392		3.18		1,710,073		1,694,647		3.05
Obligations of states and political subdivisions:
Due in 1-5 years	—		—		—		14,359		14,342		2.39
Due in 5-10 years	33,268		34,448		2.74		299,310		295,254		2.51
Due after 10 years	122,396		125,829		2.87		252,635		247,275		2.72
Total debt securities available for sale	$	3,048,836	$	3,109,803	3.11		$	2,497,004	$	2,470,065	2.90

Debt securities held to maturity:
Mortgage-backed securities:
Due in 5-10 years	$	63	$	70	6.50	%	$	30	$	32	6.50	%
Due after 10 years	141,235		147,087		2.51		146,022		146,435		2.56
Other securities:
Due in 1-5 years	3,150		3,150		2.82		2,400		2,400		2.92
Due in 5-10 years	400		400		3.00		400		400		3.00
Due after 10 years	71		71		6.00		—		—		—
Total debt securities held to maturity	$	144,919	$	150,778	2.52		$	148,852	$	149,267	2.57

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

Loans and Leases Information about loans and leases held in TCF's portfolio was as follows:



	At June 30, 2019				At December 31, 2018				Change
(Dollars in thousands)	Amount		% of Total		Amount		% of Total		$			%
Consumer real estate:
First mortgage lien	$	2,472,066	12.9	%	$	2,444,380	12.8	%	$	27,686		1.1	%
Junior lien	2,821,099		14.7		2,965,960		15.6		(144,861		)	(4.9	)
Total consumer real estate	5,293,165		27.6		5,410,340		28.4		(117,175		)	(2.2	)
Commercial:
Commercial real estate	3,262,288		17.0		2,908,147		15.3		354,141			12.2
Commercial business	923,523		4.8		943,156		4.9		(19,633		)	(2.1	)
Total commercial	4,185,811		21.8		3,851,303		20.2		334,508			8.7
Leasing and equipment finance	4,826,785		25.2		4,699,740		24.6		127,045			2.7
Inventory finance	3,404,214		17.7		3,107,356		16.3		296,858			9.6
Auto finance	1,456,138		7.6		1,982,277		10.4		(526,139		)	(26.5	)
Other	18,341		0.1		21,295		0.1		(2,954		)	(13.9	)
Total loans and leases	$	19,184,454	100.0	%	$	19,072,311	100.0	%	$	112,143		0.6

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Consumer Real Estate The consumer real estate portfolio is secured by mortgages on residential real estate and consisted of $2.5 billion of first mortgage lien loans and $2.8 billion of junior lien loans at June 30, 2019, compared with $2.4 billion and $3.0 billion, respectively, at December 31, 2018. The decrease in the consumer real estate portfolio was primarily due to sales of loans and payments received outpacing originations, partially offset by loan purchases. Loans are originated for investment and for sale. Consumer real estate originations were $546.2 million and $934.8 million for the second quarter and first six months of 2019, respectively, compared with $536.8 million and $969.3 million for the same periods in 2018. TCF sold $280.7 million and $499.8 million of consumer real estate loans during the second quarter and first six months of 2019, respectively, compared with $181.7 million and $448.0 million during the same periods in 2018. At June 30, 2019, 53.9% of the consumer real estate portfolio was in TCF's primary banking markets, compared with 53.7% at December 31, 2018. At June 30, 2019, 55.0% of the consumer real estate portfolio carried a variable or adjustable interest rate generally tied to the prime rate, compared with 56.7% at December 31, 2018. At June 30, 2019, 47.6% of TCF's consumer real estate loans consisted of closed-end loans, compared with 46.2% at December 31, 2018. TCF's closed-end consumer real estate loans require payments of principal and interest over a fixed term.

The average Fair Isaac Corporation ("FICO^®") credit score at loan origination for the consumer real estate portfolio was 740 at both June 30, 2019 and December 31, 2018. As part of TCF's credit risk monitoring, TCF obtains updated FICO score information quarterly. The average updated FICO score for the consumer real estate portfolio was 737 at both June 30, 2019 and December 31, 2018.

TCF's consumer real estate underwriting standards are intended to produce adequately secured loans to customers with good credit scores at the origination date. Beginning in 2008, TCF generally has not made new loans in excess of 90% loan-to-value at origination. TCF also has not originated consumer real estate loans with multiple payment options or loans with "teaser" interest rates. At June 30, 2019, 79.0% of the consumer real estate portfolio had been originated since January 1, 2009 with annualized net charge-offs of 0.03% for the first six months of 2019.

The consumer real estate junior lien portfolio was comprised of $2.7 billion of home equity lines of credit ("HELOCs") and $153.1 million of amortizing consumer real estate junior lien mortgage loans at June 30, 2019, compared with $2.8 billion and $164.8 million, respectively, at December 31, 2018. At June 30, 2019, $2.4 billion of the consumer real estate junior lien HELOCs had a 10-year interest-only draw period and a 20-year amortization repayment period, compared with $2.5 billion at December 31, 2018. At June 30, 2019 and December 31, 2018, all of these loans were within the 10-year interest-only draw period and will not convert to amortizing loans until 2021 or later. At June 30, 2019, $268.7 million of the consumer real estate junior lien HELOCs were interest-only revolving draw loans with no defined amortization period and original draw periods of five to 40 years, compared with $308.8 million at December 31, 2018. At June 30, 2019, 17.3% of these loans mature prior to 2025. Outstanding balances on consumer real estate lines of credit were 64.1% of total lines of credit at June 30, 2019, compared with 66.1% at December 31, 2018.

Commercial The commercial portfolio consisted of $3.3 billion of commercial real estate loans and $923.5 million of commercial business loans at June 30, 2019, compared with $2.9 billion and $943.2 million, respectively, at December 31, 2018. The increase in the commercial real estate portfolio was primarily due to strong loan originations. Total commercial originations were $822.5 million and $1.4 billion for the second quarter and first six months of 2019, respectively, compared with $590.5 million and $1.1 billion for the same periods in 2018. At June 30, 2019, 69.1% of TCF's commercial real estate loans outstanding were secured by properties located in TCF's primary banking markets, compared with 68.6% at December 31, 2018. With an emphasis on secured lending, essentially all of TCF's commercial loans were secured either by properties or other business assets at June 30, 2019 and December 31, 2018. At June 30, 2019, 80.9% of the commercial portfolio carried a variable or adjustable interest rate, compared with 78.3% at December 31, 2018.

Leasing and Equipment Finance The leasing and equipment finance portfolio consisted of $2.6 billion of leases and $2.2 billion of loans at June 30, 2019, compared with $2.5 billion and $2.2 billion, respectively, at December 31, 2018. The increase in the leasing and equipment finance portfolio was primarily due to increased originations. Leasing and equipment finance originations (including operating lease originations) were $678.2 million and $1.2 billion for the second quarter and first six months of 2019, respectively, compared with $511.5 million and $944.3 million for the same periods in 2018. The uninstalled backlog of approved transactions was $652.1 million at June 30, 2019, compared with $572.4 million at December 31, 2018.

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Inventory Finance The inventory finance portfolio consisted of $3.4 billion of loans at June 30, 2019, compared with $3.1 billion at December 31, 2018. The increase was primarily due to strong originations in both the lawn and garden and powersports marketing segments. Inventory finance originations were $2.6 billion and $4.9 billion for the second quarter and first six months of 2019, respectively, compared with $2.4 billion and $4.8 billion for the same periods in 2018. Origination levels are impacted by the velocity of fundings and repayments with dealers. TCF's inventory finance customers included more than 10,900 active dealers at June 30, 2019, compared with more than 10,800 active dealers at December 31, 2018.

Auto Finance The auto finance portfolio consisted of $1.5 billion of loans at June 30, 2019, compared with $2.0 billion at December 31, 2018. The decrease was due to run-off of the portfolio. The auto finance portfolio consisted of 20.7% new auto loans and 79.3% used auto loans at June 30, 2019 and December 31, 2018.

Credit Quality The following summarizes TCF's loan and lease portfolio based on the credit quality factors that TCF believes are the most important and should be considered to understand the overall condition of the portfolio. See Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements for further information.

Past Due Loans and Leases Over 60-day delinquent loans and leases by type, excluding non-accrual loans and leases, were as follows. Delinquent balances are determined based on the contractual terms of the loan or lease.



	At June 30, 2019				At December 31, 2018
(Dollars in thousands)	60 Days or More Delinquent and Accruing		Percentage of Period-end Loans and Leases⁽¹⁾		60 Days or More Delinquent and Accruing		Percentage of Period-end Loans and Leases⁽¹⁾
Consumer real estate:
First mortgage lien	$	4,097	0.17	%	$	4,557	0.19	%
Junior lien	1,647		0.06		1,213		0.04
Total consumer real estate	5,744		0.11		5,770		0.11
Commercial	2		—		1		—
Leasing and equipment finance	11,849		0.25		10,638		0.23
Inventory finance	16		—		310		0.01
Auto finance	7,759		0.54		11,657		0.59
Other	28		0.15		28		0.14
Subtotal	25,398		0.13		28,404		0.15
Portfolios acquired with deteriorated credit quality	452		19.87		178		4.65
Total	$	25,850	0.14		$	28,582	0.15


(1)	Excludes non-accrual loans and leases

Loan Modifications Troubled debt restructuring ("TDR") loans were as follows:



	At June 30, 2019							At December 31, 2018
(Dollars in thousands)	Accruing TDR Loans			Non-accrual TDR Loans		Total TDR Loans		Accruing TDR Loans			Non-accrual TDR Loans		Total TDR Loans
Consumer real estate	$	78,686		$	17,471	$	96,157	$	80,739		$	16,192	$	96,931
Commercial	38,882			545		39,427		4,174			3,946		8,120
Leasing and equipment finance	6,777			1,942		8,719		8,491			1,754		10,245
Inventory finance	131			2		133		—			453		453
Auto finance	4,262			6,646		10,908		5,054			6,362		11,416
Other	—			—		—		1			—		1
Total	$	128,738		$	26,606	$	155,344	$	98,459		$	28,707	$	127,166
Over 60-day delinquency as a percentage of total accruing TDR loans	<0.01		%	N.A.		N.A.		0.51		%	N.A.		N.A.

N.A. Not Applicable

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Total TDR loans were $155.3 million at June 30, 2019, compared with $127.2 million at December 31, 2018. Accruing TDR loans were $128.7 million at June 30, 2019, compared with $98.5 million at December 31, 2018. The increase in accruing TDR loans was primarily due to the modification of one commercial loan. Non-accrual TDR loans were $26.6 million at June 30, 2019, compared with $28.7 million at December 31, 2018. The decrease in non-accrual TDR loans was primarily due to a decrease in commercial non-accrual TDR loans, partially offset by an increase in consumer real estate non-accrual TDR loans.

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

TCF modifies loans through reductions in interest rates, extension of payment dates, term extensions or term extensions with a reduction of contractual payments, but generally not through reductions of principal.

TCF typically reduces a consumer real estate customer's contractual payments by reducing the interest rate by an amount appropriate for the borrower's financial condition. Loans discharged in Chapter 7 bankruptcy where the borrower did not reaffirm the debt are reported as non-accrual TDR loans upon discharge as a result of the removal of the borrower's personal liability on the loan. These loans may return to accrual status when TCF expects full repayment of the remaining pre-discharged contractual principal and interest. At June 30, 2019, 81.8% of total consumer real estate TDR loans were accruing and TCF recognized more than 62% of the original contractual interest due on accruing consumer real estate TDR loans for both the second quarter and first six months of 2019, by modifying the loans to qualified customers instead of foreclosing on the property. At June 30, 2019, collection of principal and interest under the modified terms was reasonably assured on all accruing consumer real estate TDR loans.

Non-performing Assets Non-performing assets, consisting of non-accrual loans and leases and other real estate owned, were as follows:



(Dollars in thousands)	At June 30, 2019			At December 31, 2018
Non-accrual loans and leases:
Consumer real estate	$	67,446		$	58,765
Commercial	6,793			15,025
Leasing and equipment finance	22,708			15,264
Inventory finance	2,413			8,283
Auto finance	8,633			8,578
Other	—			3
Total non-accrual loans and leases	107,993			105,918
Other real estate owned:
Consumer real estate	11,271			13,519
Commercial real estate	693			3,884
Total other real estate owned	11,964			17,403
Total non-performing assets	$	119,957		$	123,321

Non-accrual loans and leases as a percentage of total loans and leases	0.56		%	0.56		%

Non-performing assets as a percentage of total loans and leases and other real estate owned	0.62			0.65

Allowance for loan and lease losses as a percentage of non-accrual loans and leases	135.66			148.65

Non-performing assets were $120.0 million at June 30, 2019, compared with $123.3 million at December 31, 2018. The decrease was primarily due to decreases in commercial and inventory finance non-accrual loans and other real estate owned, partially offset by increases in consumer real estate and leasing and equipment finance non-accrual loans and leases.

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

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

Changes in the amount of non-accrual loans and leases were as follows:



	At or For the Quarter Ended June 30, 2019
(In thousands)	Consumer Real Estate			Commercial			Leasing and Equipment Finance			Inventory Finance			Auto Finance			Other			Total
Balance, beginning of period	$	65,518		$	7,529		$	20,235		$	969		$	9,033		$	1		$	103,285
Additions	12,456			7,618			10,059			3,876			3,051			14			37,074
Charge-offs	(1,611		)	(3,461		)	(2,186		)	(358		)	(658		)	(14		)	(8,288		)
Transfers to other assets	(4,150		)	—			(2,190		)	(148		)	(644		)	—			(7,132		)
Return to accrual status	(1,629		)	—			(246		)	(824		)	—			—			(2,699		)
Payments received	(2,890		)	(5,100		)	(2,964		)	(1,115		)	(2,149		)	(1		)	(14,219		)
Other, net	(248		)	207			—			13			—			—			(28		)
Balance, end of period	$	67,446		$	6,793		$	22,708		$	2,413		$	8,633		$	—		$	107,993

	At or For the Six Months Ended June 30, 2019
(In thousands)	Consumer Real Estate			Commercial			Leasing and Equipment Finance			Inventory Finance			Auto Finance			Other			Total
Balance, beginning of period	$	58,765		$	15,025		$	15,264		$	8,283		$	8,578		$	3		$	105,918
Additions	29,293			7,618			22,142			10,371			6,943			47			76,414
(Charge-offs)	(3,022		)	(5,561		)	(3,868		)	(2,007		)	(1,316		)	(49		)	(15,823		)
Transfers to other assets	(7,959		)	—			(4,960		)	(2,920		)	(1,344		)	—			(17,183		)
Return to accrual status	(3,395		)	(3,844		)	(479		)	(2,894		)	—			—			(10,612		)
Payments received	(5,850		)	(8,904		)	(5,391		)	(8,431		)	(4,228		)	(1		)	(32,805		)
Other, net	(386		)	2,459			—			11			—			—			2,084
Balance, end of period	$	67,446		$	6,793		$	22,708		$	2,413		$	8,633		$	—		$	107,993

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

Loans and leases by portfolio and regulatory classification were as follows:



	At June 30, 2019
	Non-classified				Classified				Total
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Consumer real estate	$	5,215,167	$	3,517	$	74,481	$	—	$	5,293,165
Commercial	4,031,131		98,681		55,999		—		4,185,811
Leasing and equipment finance	4,739,597		44,855		42,333		—		4,826,785
Inventory finance	3,218,227		119,968		66,019		—		3,404,214
Auto finance	1,437,793		790		17,555		—		1,456,138
Other	18,314		—		27		—		18,341
Total loans and leases	$	18,660,229	$	267,811	$	256,414	$	—	$	19,184,454



	At December 31, 2018
	Non-classified				Classified				Total
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Consumer real estate	$	5,338,036	$	7,353	$	64,951	$	—	$	5,410,340
Commercial	3,753,229		42,315		55,759		—		3,851,303
Leasing and equipment finance	4,621,229		42,236		36,275		—		4,699,740
Inventory finance	2,931,221		111,804		64,331		—		3,107,356
Auto finance	1,960,580		1,302		20,395		—		1,982,277
Other	21,264		—		31		—		21,295
Total loans and leases	$	18,625,559	$	205,010	$	241,742	$	—	$	19,072,311

Total classified loans and leases were $256.4 million at June 30, 2019, compared with $241.7 million at December 31, 2018. The increase was primarily due to increases in the consumer real estate and leasing and equipment finance classified loans and leases, partially offset by a decrease in auto finance classified loans.

Allowance for Loan and Lease Losses The determination of the allowance for loan and lease losses is a critical accounting estimate. TCF's evaluation of incurred losses is based on historical loss rates multiplied by the respective portfolio's loss emergence period. Factors utilized in the determination of the amount of the allowance include historical trends in loss rates, a portfolio's overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values, economic outlook and prevailing economic conditions. The various factors used in the methodologies are reviewed on a periodic basis.

The Company considers the allowance for loan and lease losses of $146.5 million appropriate to cover losses incurred in the loan and lease portfolios at June 30, 2019. However, no assurance can be given that TCF will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved or will not require significant changes in the balance of the allowance for loan and lease losses due to subsequent evaluations of the loan and lease portfolios, in light of factors then prevailing, including economic conditions, information obtained during TCF's ongoing credit review process or regulatory requirements. Among other factors, an economic slowdown, increasing levels of unemployment, a decline in collateral values and/or rising interest rates may have an adverse impact on the current adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of potential loss.

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

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Detailed Information regarding TCF's allowance for loan and lease losses was as follows:



	At June 30, 2019				At December 31, 2018
	Credit Loss Reserves				Credit Loss Reserves
(Dollars in thousands)	Amount		As a Percentage of Portfolio		Amount		As a Percentage of Portfolio
Consumer real estate:
First mortgage lien	$	21,102	0.85	%	$	21,436	0.88	%
Junior lien	22,878		0.81		23,430		0.79
Total consumer real estate	43,980		0.83		44,866		0.83
Commercial:
Commercial real estate	22,747		0.70		22,877		0.79
Commercial business	14,042		1.52		18,305		1.94
Total commercial	36,789		0.88		41,182		1.07
Leasing and equipment finance	26,270		0.54		23,791		0.51
Inventory finance	12,733		0.37		12,456		0.40
Auto finance	25,940		1.78		34,329		1.73
Other	791		4.31		822		3.86
Total allowance for loan and lease losses	146,503		0.76		157,446		0.83
Other credit loss reserves:
Reserves for unfunded commitments	1,936		N.A.		1,429		N.A.
Total credit loss reserves	$	148,439	0.77		$	158,875	0.83

N.A. Not Applicable

Net loan and lease charge-offs for the second quarter and first six months of 2019 were $14.1 million, or 0.29% of average loans and leases (annualized), and $32.7 million, or 0.34% of average loans and leases (annualized), respectively, compared with $12.8 million, or 0.27%, and $26.9 million, or 0.28%, for the same periods in 2018. The increases in net loan and lease charge-offs from the second quarter and first six months of 2018 were primarily due to increased net charge-offs in the commercial portfolio, partially offset by decreased net charge-offs in the auto finance portfolio. The increase in net loan and lease charge-offs from the first six months of 2018 was also due to increased net charge-offs in the inventory finance portfolio.

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

TCF Bank had $105.3 million of net liquidity qualifying interest-bearing deposits at the Federal Reserve Bank at June 30, 2019, compared with $208.4 million at December 31, 2018. Certain debt securities held to maturity and debt securities available for sale provide the ability to liquidate or pledge unencumbered securities as needed. At June 30, 2019, the fair value of these securities was $3.3 billion, of which $1.5 million was pledged as collateral to secure certain deposits and borrowings.

TCF Financial had net liquidity qualifying cash of $153.4 million at June 30, 2019, compared with $90.4 million at December 31, 2018.

Deposits are the primary source of TCF's funds for use in lending and for other general business purposes. In addition to deposits, TCF receives funds from loan and lease repayments, loan sales and borrowings. Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, net deposit outflows or to fund balance sheet growth. TCF primarily borrows from the Federal Home Loan Bank (the "FHLB") of Des Moines. TCF had $1.2 billion of additional borrowing capacity at the FHLB of Des Moines at June 30, 2019, as well as access to the Federal Reserve Discount Window. In addition, TCF maintains a diversified set of unsecured and uncommitted funding sources, including access to overnight federal funds purchased lines, brokered deposits and capital markets. Lending activities, such as loan originations, loan purchases and equipment purchases for lease financing are the primary uses of TCF's funds.

TCF Commercial Finance Canada, Inc. ("TCFCFC") maintains a $20.0 million Canadian dollar-denominated line of credit facility with a counterparty, which is guaranteed by TCF Bank. TCFCFC had $764 thousand (USD) outstanding under the line of credit with the counterparty at June 30, 2019 and no outstanding borrowings at December 31, 2018.

Deposits Deposits were $19.1 billion at June 30, 2019, compared with $18.9 billion at December 31, 2018.

Non-interest bearing checking accounts represented 21.2% of total deposits at June 30, 2019, compared with 20.7% of total deposits at December 31, 2018. TCF's weighted-average interest rates for deposits, including non-interest bearing deposits, were 0.86% and 0.84% for the second quarter and first six months of 2019, respectively, compared with 0.52% and 0.51% for the same periods in 2018.

Certificates of deposit were $4.6 billion at June 30, 2019, compared with $4.8 billion at December 31, 2018. The maturities of certificates of deposit with denominations equal to or greater than $100,000 at June 30, 2019 were as follows:



(In thousands)
Three months or less	$	473,236
Over three through six months	656,848
Over six through 12 months	964,122
Over 12 months	109,404
Total	$	2,203,610

Borrowings Borrowings were $2.0 billion at June 30, 2019, compared with $1.4 billion at December 31, 2018. The increase in borrowings was primarily due to an increase in short-term FHLB advances of $350.0 million and the offering of $150.0 million of fixed-to-floating rate subordinated notes.

See Note 9. Long-term Borrowings of Notes to Consolidated Financial Statements for further information regarding TCF's long-term borrowings.

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Capital Management TCF is committed to managing capital to maintain protection for stockholders, depositors and creditors. TCF employs a variety of capital management tools to achieve its capital goals, including, but not limited to, dividends, public offerings of preferred and common stock, common stock repurchases, redemption of preferred stock and the issuance or redemption of subordinated debt and other capital instruments. TCF maintains a Capital Planning and Dividend Policy which applies to TCF Financial and incorporates TCF Bank's Capital Planning and Dividend Policy. These policies ensure that capital strategy actions, including the addition of new capital, if needed, common stock repurchases, redemption of preferred stock or the declaration of preferred stock, common stock and bank dividends are prudent, efficient and provide value to TCF's stockholders, while ensuring that past and prospective earnings retention is consistent with TCF's capital needs for growth, as well as asset quality and overall financial condition. TCF and TCF Bank manage their capital levels to exceed all regulatory capital requirements. All regulatory capital requirements were met at June 30, 2019 and December 31, 2018. See Note 10. Regulatory Capital Requirements of Notes to Consolidated Financial Statements for further information.

Equity Total equity was $2.7 billion, or 11.0% of total assets, at June 30, 2019, compared with $2.6 billion, or 10.8% of total assets, at December 31, 2018.

Treasury Stock and Other Treasury stock and other was $265.0 million at June 30, 2019, compared with $252.2 million at December 31, 2018. The increase was primarily due to repurchases of TCF common stock, partially offset by reissuances of shares of treasury stock for grants of restricted stock awards and vesting of restricted stock units. TCF repurchased $26.5 million of its common stock during the second quarter and first six months of 2019, compared with repurchases of $68.2 million and $125.9 million during the same periods in 2018. At June 30, 2019, TCF had the authority to repurchase an additional $51.6 million in aggregate value of shares, pursuant to its share repurchase program. TCF reissued 378,385 and 672,839 shares of treasury stock with a value of $8.7 million and $15.5 million during the second quarter and first six months of 2019, respectively. There were no reissuances of shares of treasury stock during the second quarter and first six months of 2018.

Common Stock Dividends Dividends to common stockholders on a per share basis were 15.0 cents for both the second quarter of 2019 and 2018. TCF's common stock dividend payout ratio was 27.8% for the second quarter of 2019, compared with 44.1% for the same period in 2018. TCF Financial's primary funding sources for dividends are earnings and dividends received from TCF Bank.

Common Stockholders' Equity Total common stockholders' equity was $2.5 billion, or 10.22% of total assets, at June 30, 2019, compared with $2.4 billion, or 9.99%, at December 31, 2018. Tangible common stockholders' equity was $2.3 billion, or 9.58% of total tangible assets, at June 30, 2019, compared with $2.2 billion, or 9.32%, at December 31, 2018. Book value per common share was $15.46 at June 30, 2019, compared with $14.45 at December 31, 2018. Tangible book value per common share was $14.39 at June 30, 2019, compared with $13.38 at December 31, 2018. See "Consolidated Financial Condition Analysis — Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Non-GAAP Financial Measures This report contains the following financial measures that are not recognized under generally accepted accounting principles in the United States ("GAAP") (i.e. non-GAAP): ROATCE, adjusted ROATCE, adjusted efficiency ratio, tangible common equity to tangible assets and tangible book value per common share. The adjusted ROATCE and adjusted efficiency ratios are adjusted for merger-related expenses for the second quarter and first six months of 2019 and adjusted for the settlement with the CFPB and OCC for the second quarter and first six months of 2018. Management uses non-GAAP financial measures internally to measure performance and believes that non-GAAP financial measures provide meaningful information to investors that will permit them to assess the Company's capital and ability to withstand unexpected market or economic conditions and to assess the performance of the Company in relation to other banking institutions on the same basis as that applied by management, analysts and banking regulators.

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

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The computations of ROATCE and adjusted ROATCE were as follows:



		For the Quarter Ended June 30,						For the Six Months Ended June 30,
(Dollars in thousands)		2019			2018			2019			2018
Net income available to common stockholders	(a)	$	87,933		$	56,255		$	155,934		$	122,429
Plus: Other intangibles amortization⁽¹⁾		800			835			1,614			1,666
Less: Related income tax expense		190			201			383			401
Net income available to common stockholders used in ROATCE calculation	(b)	$	88,543		$	56,889		$	157,165		$	123,694

Adjusted net income available to common stockholders:
Net income available to common stockholders		$	87,933		$	56,255		$	155,934		$	122,429
Plus: Merger-related expenses		4,226			—			13,684			—
Plus: CFPB/OCC settlement adjustment		—			32,000			—			32,000
Plus: Other intangibles amortization⁽¹⁾		800			835			1,614			1,666
Less: Related income tax expense		1,193			6,692			3,632			6,892
Net income available to common stockholders used in adjusted ROATCE calculation	(c)	$	91,766		$	82,398		$	167,600		$	149,203

Average balances:
Total equity		$	2,664,016		$	2,512,128		$	2,621,867		$	2,546,334
Less: Non-controlling interest in subsidiaries		29,630			28,654			27,089			25,938
Total TCF Financial Corporation stockholders' equity		2,634,386			2,483,474			2,594,778			2,520,396
Less: Preferred stock		169,302			169,302			169,302			184,767
Average total common stockholders' equity	(d)	2,465,084			2,314,172			2,425,476			2,335,629
Less: Goodwill, net		154,757			154,757			154,757			154,757
Less: Other intangibles, net⁽¹⁾		19,289			22,672			19,694			22,971
Average tangible common stockholders' equity used in ROATCE calculation	(e)	$	2,291,038		$	2,136,743		$	2,251,025		$	2,157,901

Average total common stockholders' equity		$	2,465,084		$	2,314,172		$	2,425,476		$	2,335,629
Plus: CFPB/OCC settlement adjustment to average total common stockholders' equity		—			4,205			—			2,114
Less: Goodwill, net		154,757			154,757			154,757			154,757
Less: Other intangibles, net⁽¹⁾		19,289			22,672			19,694			22,971
Average tangible common stockholders' equity used in adjusted ROATCE calculation	(f)	$	2,291,038		$	2,140,948		$	2,251,025		$	2,160,015

ROACE⁽²⁾	(a) / (d)	14.27		%	9.72		%	12.86		%	10.48		%
ROATCE⁽²⁾	(b) / (e)	15.46			10.65			13.96			11.46
Adjusted ROATCE⁽²⁾	(c) / (f)	16.02			15.39			14.89			13.81


(1)	Includes non-mortgage servicing assets


(2)	Annualized

The computation of the adjusted efficiency ratio was as follows:



		For the Quarter Ended June 30,						For the Six Months Ended June 30,
(Dollars in thousands)		2019			2018			2019			2018
Non-interest expense	(a)	$	236,849		$	272,039		$	489,924		$	518,019
Less: Merger-related expenses		4,226			—			13,684			—
Less: CFPB/OCC settlement adjustment		—			32,000			—			32,000
Adjusted non-interest expense	(b)	$	232,623		$	240,039		$	476,240		$	486,019

Net interest income		$	250,324		$	250,799		$	501,231		$	493,998
Non-interest income		113,451			114,103			220,477			226,307
Total revenue	(c)	$	363,775		$	364,902		$	721,708		$	720,305

Efficiency ratio	(a) / (c)	65.11		%	74.55		%	67.88		%	71.92		%
Adjusted efficiency ratio	(b) / (c)	63.95			65.78			65.99			67.47

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The computations of tangible common equity to tangible assets and tangible book value per common share were as follows:



(Dollars in thousands, except per share data)		At June 30, 2019			At December 31, 2018
Total equity		$	2,710,518		$	2,556,260
Less: Non-controlling interest in subsidiaries		24,858			18,459
Total TCF Financial Corporation stockholders' equity		2,685,660			2,537,801
Less: Preferred stock		169,302			169,302
Total common stockholders' equity	(a)	2,516,358			2,368,499
Less: Goodwill, net		154,757			154,757
Less: Other intangibles, net⁽¹⁾		18,904			20,518
Tangible common stockholders' equity	(b)	$	2,342,697		$	2,193,224

Total assets	(c)	$	24,626,830		$	23,699,612
Less: Goodwill, net		154,757			154,757
Less: Other intangibles, net⁽¹⁾		18,904			20,518
Tangible assets	(d)	$	24,453,169		$	23,524,337

Common stock shares outstanding	(e)	162,770,063			163,923,227

Common equity to assets	(a) / (c)	10.22		%	9.99		%
Tangible common equity to tangible assets	(b) / (d)	9.58			9.32

Book value per common share	(a) / (e)	$	15.46		$	14.45
Tangible book value per common share	(b) / (e)	14.39			13.38


(1)	Includes non-mortgage servicing assets

Recent Accounting Developments

For a description of new accounting standards issued, but not yet adopted by the Company, see Note 3. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.

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Forward-looking Information

Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for the Company's businesses and their respective markets, such as projections of future performance, targets, guidance, statements of the Company's plans and objectives, forecasts of market trends and other matters are forward-looking statements based on the Company's assumptions and beliefs. Such statements may be identified by such words or phrases as "will likely result," "are expected to," "will continue," "outlook," "will benefit," "is anticipated," "estimate," "project," "management believes" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.

Certain factors could cause the Company's future results to differ materially from those expressed or implied in any forward-looking statements contained herein. These factors include the factors discussed in Part I, Item 1A. of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 under the heading "Risk Factors", the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive: deterioration in general economic, political and banking industry conditions; cyber-security breaches, hacking, denial of service, security breaches, loss or theft of information, or other cyber-attacks that disrupt TCF's business operations or damage its reputation; fluctuation in interest rates that result in decreases in the value of assets or a mismatch between yields earned on TCF's interest-earning assets and the rates paid on its deposits and borrowings; lack of access to liquidity; inability to pay and receive dividends; adverse effects related to competition from traditional competitors, non-bank providers of financial services and new technologies; soundness of other financial institutions and other counterparty risk, including the risk of default, operational disruptions, security breaches, or diminished availability of counterparties who satisfy our credit quality requirements; adverse developments affecting TCF's branches, including supermarket branches; risks related to developing new products, markets or lines of business; changes in the allowance for loan and lease losses dictated by new market conditions, regulatory requirements or accounting standards; new consumer protection and supervisory requirements or regulatory reform related to capital, leverage, liquidity or risk management; adverse changes in monetary, fiscal or tax policies; heightened regulatory practices or requirements related to enterprise risk management, the Bank Secrecy Act and anti-money laundering compliance activity; deficiencies in TCF's compliance programs or risk mitigation frameworks; the effect of any negative publicity or reputational damage; technological or operational difficulties; failure to keep pace with technological change, including with respect to customer demands or system upgrades; risks related to TCF's loan sales activity; dependence on accurate and complete information from customers and counterparties; the failure to attract and retain key employees; inability to successfully execute on TCF's growth strategy through acquisitions or expanding existing business relationships; changes in accounting standards or interpretations of existing standards; adverse federal, state or foreign tax assessments; litigation or government enforcement actions; ineffective internal controls; and the effects of man-made and natural disasters, any of which may negatively affect our operations and/or our customers.

This report also contains forward-looking statements regarding TCF's outlook or expectations with respect to the planned merger with Chemical. Examples of forward-looking statements include, but are not limited to, statements regarding the outlook and expectations of TCF and Chemical with respect to their planned merger, the strategic benefits and financial benefits of the merger, including the expected impact of the transaction on the combined company's future financial performance (including anticipated accretion to earnings per share, the tangible book value earn-back period and other operating and return metrics) and the timing of the closing of the transaction. Such risks, uncertainties and assumptions, include, among others, the following:

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•	the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;

•

the possibility that the anticipated benefits of the merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where TCF and Chemical do business, or as a result of other unexpected factors or events;


•	the impact of purchase accounting with respect to the merger, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;


•	diversion of management's attention from ongoing business operations and opportunities;


•	potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger;


•	the integration of the businesses and operations of TCF and Chemical, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to TCF's or Chemical's existing businesses;


•	business disruptions resulting from or following the merger;


•	the potential impact of the merger on relationships with third parties, including customers, vendors, employees and competitors; and

•

other factors that may affect future results of TCF and Chemical including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.

TCF disclaims any obligation to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by law.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Interest Rate Risk

TCF's ALCO and the Finance Committee of TCF Financial's Board of Directors have established interest rate risk policy limits. Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities. As such, the major sources of the Company's interest rate risk are timing differences in the maturity and repricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in consumer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of simulation and valuation analyses. The interest rate scenarios may include gradual or rapid changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about consumer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest rate risk. TCF, like most financial institutions, has material interest rate risk exposure to changes in both short- and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or London Interbank Offered Rate).

TCF's ALCO is responsible for reviewing the Company's interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. ALCO manages TCF's interest rate risk based on interest rate expectations and other factors. The principal objective of TCF in managing its assets and liabilities is to provide maximum levels of net interest income and facilitate the funding needs of the Company, while maintaining acceptable levels of interest rate risk and liquidity risk.

ALCO primarily uses two interest rate risk tools with policy limits to evaluate TCF's interest rate risk: net interest income simulation and economic value of equity ("EVE") analysis. In addition, the interest rate gap is reviewed periodically to monitor asset and liability repricing over various time periods.

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

The following table presents changes in TCF's net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate change. The impact of planned changes to interest-earning assets and new business activities is factored into the simulation model.



	Impact on Net Interest Income
(Dollars in millions)	June 30, 2019
Immediate change in interest rates:
+200 basis points	$	56.8		5.7	%
+100 basis points	33.0			3.3
-100 basis points	(65.3		)	(6.6	)

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As of June 30, 2019, approximately 67% of TCF's loan and lease balances were expected to reprice, amortize or prepay in the next 12 months and approximately 60% of TCF's deposit balances were low or no cost deposits. TCF believes that the mix of assets repricing compared with low or no cost deposits positions TCF well for rising interest rates. Currently our interest rate risk profile is such that we project net interest income will benefit from a rising rate environment, as our assets reprice faster and to a greater degree than our liabilities. In a declining interest rate environment, our assets would reprice downward to a greater degree than our liabilities. Since 2016, management has taken steps to manage this interest rate risk position. While management continues to take action intended to advance TCF toward being less asset sensitive, the risk of lower net interest income as a result of a declining interest rate environment remains. Since deposit costs are already at a low level, management believes that lower interest rates are unlikely to impact our low or no cost deposits to the same degree as TCF’s interest rate sensitive assets.

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

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

Item 4. Controls and Procedures.

Disclosure Controls and Procedures The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Company's Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2019.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by TCF in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), as appropriate, to allow for timely decisions regarding required disclosure. TCF's disclosure controls also include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and that transactions are properly recorded and reported.

Changes in Internal Control Over Financial Reporting There were no changes to TCF's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, TCF's internal control over financial reporting.

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Part II - Other Information

Item 1. 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 Securities and Exchange Commission ("SEC"), the Federal Reserve, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau 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.

As previously disclosed, in connection with TCF's planned merger with Chemical Financial Corporation ("Chemical"), purported stockholders of TCF filed five putative class action lawsuits and individual lawsuits against TCF and members of TCF's board of directors (collectively, the "Actions"). Three of these lawsuits were filed in the United States District Court for the District of Delaware: Wang v. TCF Financial Corporation et al., 1:19-cv-00661 (filed on April 9, 2019), Parshall v. TCF Financial Corporation et al., 1:19-cv-00663 (filed on April 10, 2019) and White v. TCF Financial Corporation et al., 1:19-cv-00683 (filed on April 12, 2019). One lawsuit was filed in the United States District Court for the Southern District of New York: Harrelson v. TCF Financial Corporation et al., 1:19-cv-03183 (filed on April 10, 2019). And one lawsuit was filed in the Delaware Court of Chancery: Nelson v. TCF Financial Corporation et al., 2019-0335-JTL (filed on May 6, 2019). In general, the Actions asserted claims against TCF and TCF's board of directors, alleging, among other things, that the defendants misstated or failed to disclose certain allegedly material information in the definitive joint proxy statement/prospectus relating to the merger that Chemical and TCF filed with the SEC on May 3, 2019.

TCF believes that the allegations in the Actions were without merit; however, to avoid the costs, risks, nuisance and uncertainties inherent in litigation, TCF voluntarily provided supplemental disclosures related to the merger as set forth in TCF's Current Report on Form 8-K dated May 28, 2019. Plaintiffs in the Actions dismissed their respective complaints with prejudice as to their individual claims and without prejudice to the claims of the members of the putative class.In dismissing the Actions, plaintiffs reserved the right to seek an award of attorneys' fees from the court.

Item 1A. Risk Factors.

There were no material changes in risk factors for TCF in the quarter covered by this report. You should carefully consider the risks and risk factors included under Item 1A. of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. TCF's business, financial condition or results of operations could be materially adversely affected by any of these risks.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share repurchase activity for the quarter ended June 30, 2019 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
April 1 to April 30, 2019
Share repurchase program⁽¹⁾	—	$	—	—	$	78,052,490
Employee transactions⁽²⁾	103,645	21.12		N.A.	N.A.
May 1 to May 31, 2019
Share repurchase program⁽¹⁾	—	$	—	—	$	78,052,490
Employee transactions⁽²⁾	—	—		N.A.	N.A.
June 1 to June 30, 2019
Share repurchase program⁽¹⁾	1,324,920	$	19.98	1,324,920	$	51,557,786
Employee transactions⁽²⁾	1,020	19.15		N.A.	N.A.
Total
Share repurchase program⁽¹⁾	1,324,920	$	19.98	1,324,920	$	51,557,786
Employee transactions⁽²⁾	104,665	21.10		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.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.



Exhibit Number		Description
3(a)		Amended and Restated Certificate of Incorporation of TCF Financial Corporation [incorporated by reference to Exhibit 3.1 of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed May 3, 2018 (No. 18803407)]
3(b)		Amended and Restated Bylaws of TCF Financial Corporation [incorporated by reference to Exhibit 3.1 to TCF Financial Corporation's Current Report on Form 8-K filed January 28, 2019 (No.19546413)]
4(a)		Specimen Common Stock Certificate of TCF Financial Corporation [incorporated by reference to Exhibit 4.3 to TCF Financial Corporation’s Registration Statement on Form S-3ASR filed May 29, 2012 (No. 12874917)]
4(b)		Form of Stock Certificate representing the Series C Non-Cumulative Perpetual Preferred Stock [incorporated by reference to Exhibit 4.1 to TCF Financial Corporation’s Current Report on Form 8-K filed September 14, 2017 (No. 171084863)]
4(c)		Deposit Agreement dated September 14, 2017 by and among TCF Financial Corporation, Computershare Trust Company N.A. and Computershare Inc. and the holders from time to time of the Depositary Receipts described therein [incorporated by reference to Exhibit 4.2 to TCF Financial Corporation’s Current Report on Form 8-K filed September 14, 2017 (No. 171084863)]
4(d)		Form of Depositary Receipt [included as part of Exhibit 4.2 to TCF Financial Corporation’s Current Report on Form 8-K filed September 14, 2017 (No. 171084863)]
4(e)		Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request.
31.1#		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH#		XBRL Taxonomy Extension Schema Document
101.CAL#		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#		XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB#		XBRL Taxonomy Extension Label Linkbase Document
101.PRE#		XBRL Taxonomy Extension Presentation Linkbase Document

# Filed herein

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	TCF FINANCIAL CORPORATION


	/s/ Craig R. Dahl
	Craig R. Dahl,
	Chairman, President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Brian W. Maass
	Brian W. Maass,
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

	/s/ Susan D. Bode
	Susan D. Bode,
	Senior Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

Dated: July 31, 2019