~~Forward-Looking Statements~~

This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and us. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "plans," "potential," "seeks," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. These statements include, among others, statements related to: our belief that unrealized losses on our investment securities at September 30, 2018 were temporary in nature, our strategic plan to develop customer relationships that will drive core deposit growth and stability, management's belief that our commercial and commercial real estate loan portfolios are generally well-secured, management's opinion that our borrowing capacity could be expanded, the impact of projected changes in net interest income assuming changes to short-term market interest rates, statements regarding our risk exposure in our primary markets, as well as statements related to the anticipated effects on results of operations and financial condition from expected developments. All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on us, specifically, are also inherently uncertain.

Forward-looking statements are based upon current beliefs and expectations and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Risk factors include, without limitation:

~~our ability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry;~~

~~operational and regulatory challenges associated with our information technology systems and policies and procedures in light of our rapid growth and systems conversion in 2018;~~

~~our ability to grow deposits;~~

economic conditions (both generally and in our markets) may be less favorable than expected, which could result in, among other things, a deterioration in credit quality, a reduction in demand for credit and a decline in real estate values;

~~a general decline in the real estate and lending markets, particularly in our market areas, could negatively affect our financial results;~~

~~increased cybersecurity risk, including potential network breaches, business disruptions, or financial losses;~~

~~increases in competitive pressure in the banking and financial services industry:~~

~~the timing of when historic tax credits are placed into service could impact operating expenses:~~

risks related to potential mergers and acquisitions including potential deposit attrition, higher than expected costs, customer loss and business disruption, including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration related-matters, and the potential inability to identify and successfully negotiate and complete additional successful combinations with potential merger or acquisition partners:

~~current or future restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals;~~

~~legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect us;~~

~~changes in the interest rate environment may reduce margins or the volumes or values of the loans we make or have acquired; and~~

~~economic, governmental, or other factors may prevent the projected population, residential, and commercial growth in the markets in which we operate.~~

In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017 or disclosed in documents filed or furnished by the Corporation with or to the SEC after the filing of such Annual Report on Form 10-K. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

Part I.I - Financial Information

Item 1. Financial ~~Statements~~Statements.

~~Chemical Financial Corporation~~TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial ~~Position~~Condition (Unaudited)

(Dollars in thousands, except per share data) September 30, 2018 December 31, 2017
(Unaudited)
Assets
Cash and cash equivalents:
Cash and cash due from banks $ 285,605
$ 226,003
Interest-bearing deposits with the Federal Reserve Bank and other banks 379,158
229,988
Total cash and cash equivalents 664,763

455,991
Investment securities:
Carried at fair value 2,736,880
1,963,546
Held-to-maturity, at amortized cost (fair value of $598,197 and $662,906, respectively) 608,367
677,093
Total investment securities 3,345,247
2,640,639
Loans held-for-sale, at fair value 93,736
52,133
Loans 14,796,252
14,155,267
Allowance for loan losses (104,041 ) (91,887 )
Net loans 14,692,211
14,063,380
Premises and equipment 123,305
126,896
Loan servicing rights, at fair value 72,707
63,841
Goodwill 1,134,568
1,134,568
Other intangible assets 29,981
34,271
Interest receivable and other assets 748,971
709,154
Total assets $ 20,905,489
$ 19,280,873
Liabilities
Deposits:
Noninterest-bearing $ 4,015,323
$ 3,725,779
Interest-bearing 11,429,529
9,917,024
Total deposits 15,444,852
13,642,803
Collateralized customer deposits 377,471
415,236
Short-term borrowings 1,670,000
2,000,000
Long-term borrowings 430,971
372,882
Interest payable and other liabilities 193,271
181,203
Total liabilities 18,116,565
16,612,124
Shareholders’ equity
Preferred stock, no par value:
Authorized – 2,000,000 shares at 9/30/18 and 12/31/17, none issued —
—
Common stock, $1.00 par value per share:
Authorized – 135,000,000 shares at 9/30/18 and12/31/17
Issued and outstanding – 71,437,826 shares at 9/30/18 and 71,207,114 shares at 12/31/17 71,438
71,207
Additional paid-in capital 2,207,631
2,203,637
Retained earnings 567,510
419,403
Accumulated other comprehensive loss (57,655 ) (25,498 )
Total shareholders’ equity 2,788,924
2,668,749
Total liabilities and shareholders’ equity $ 20,905,489
$ 19,280,873



(Dollars in thousands, except per share data)	At September 30, 2019			At December 31, 2018

ASSETS
Cash and cash equivalents:
Cash and due from banks	$	586,060		$	279,267
Interest-bearing deposits with other banks	736,954			307,790
Total cash and cash equivalents	1,323,014			587,057
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	290,238			91,654
Investment securities:
Available-for-sale, at fair value	5,579,835			2,470,065
Held-to-maturity, at amortized cost (fair value of $149,928 and $149,267)	144,000			148,852
Total investment securities	5,723,835			2,618,917
Loans and leases held-for-sale (includes $114,831 and $18,070 at fair value)	1,436,069			90,664
Loans and leases	33,510,752			19,073,020
Allowance for loan and lease losses	(121,218		)	(157,446		)
Loans and leases, net	33,389,534			18,915,574
Premises and equipment, net	554,194			427,534
Goodwill	1,265,111			154,757
Other intangible assets, net	215,910			20,496
Loan servicing rights	55,301			23
Other assets	1,439,305			792,936
Total assets	$	45,692,511		$	23,699,612
LIABILITIES AND EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	7,979,900		$	3,936,155
Interest-bearing	27,306,174			14,967,531
Total deposits	35,286,074			18,903,686
Short-term borrowings	2,607,300			—
Long-term borrowings	860,482			1,449,472
Other liabilities	1,245,238			790,194
Total liabilities	39,999,094			21,143,352
Equity
Preferred stock, $0.01 par value
Authorized - 2,000,000 shares at September 30, 2019 and 30,000,000 shares at December 31, 2018
Issued and outstanding - 7,000 shares at both September 30, 2019 and December 31, 2018	169,302			169,302
Common stock, $1.00 par value at both September 30, 2019 and December 31, 2018
Authorized - 220,000,000 shares at September 30, 2019 and 142,268,000 shares at December 31, 2018
Issued and outstanding - 153,571,381 shares at September 30, 2019 and 88,198,460 shares at December 31, 2018	153,571			88,198
Additional paid-in capital	3,478,159			798,627
Retained earnings	1,840,214			1,766,994
Accumulated other comprehensive income (loss)	56,228			(33,138		)
Treasury stock at cost and other (4,909,069 Treasury shares at December 31, 2018)	(27,370		)	(252,182		)
Total TCF Financial Corporation shareholders' equity	5,670,104			2,537,801
Non-controlling interest	23,313			18,459
Total equity	5,693,417			2,556,260
Total liabilities and equity	$	45,692,511		$	23,699,612

See accompanying notes to ~~Consolidated Financial Statements (unaudited).~~consolidated financial statements.

~~Chemical Financial Corporation~~

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands, except per share data) 2018 2017 2018 2017
Interest income
Interest and fees on loans $ 172,686
$ 148,771
$ 494,892
$ 422,570
Interest on investment securities:
Taxable 16,360
9,326
43,485
21,207
Tax-exempt 6,178
4,577
17,732
13,238
Dividends on nonmarketable equity securities 1,368
1,039
5,458
2,906
Interest on deposits with the Federal Reserve Bank, other banks and Federal funds sold 1,785
1,231
4,326
3,052
Total interest income 198,377
164,944
565,893
462,973
Interest expense
Interest on deposits 27,250
12,926
62,874
32,424
Interest on collateralized customer deposits 721
462
1,886
808
Interest on short-term borrowings 9,510
6,129
28,084
12,100
Interest on long-term borrowings 1,415
1,799
4,168
5,968
Total interest expense 38,896
21,316
97,012
51,300
Net interest income 159,481
143,628
468,881
411,673
Provision for loan losses 6,028
5,499
21,856
15,778
Net interest income after provision for loan losses 153,453
138,129
447,025
395,895
Noninterest income
Service charges and fees on deposit accounts 8,187
9,147
25,265
25,928
Wealth management revenue 6,040
6,188
19,539
18,973
Other charges and fees for customer services 6,481
6,624
18,109
25,249
Net gain on sale of loans and other mortgage banking revenue 9,837
5,241
31,216
24,280
Net gain on sale of investment securities —
1
3
168
Other 7,372
4,921
22,357
17,102
Total noninterest income 37,917
32,122
116,489
111,700
Operating expenses
Salaries, wages and employee benefits 56,894
52,590
168,599
164,731
Occupancy 8,620
6,871
24,310
23,008
Equipment and software 8,185
7,582
24,120
24,248
Outside processing and service fees 12,660
9,626
33,689
26,061
Merger expenses —
2,379
—
7,011
Restructuring expenses —
18,824
—
18,824
Other 23,302
21,667
65,114
58,089
Total operating expenses 109,661
119,539
315,832
321,972
Income before income taxes 81,709
50,712
247,682
185,623
Income tax expense 11,312
10,253
36,701
45,546
Net income $ 70,397
$ 40,459
$ 210,981
$ 140,077
Earnings per common share:
Basic $ 0.99
$ 0.57
$ 2.96
$ 1.98
Diluted $ 0.98
$ 0.56
$ 2.93
$ 1.95
Cash dividends declared per common share $ 0.34
$ 0.28
$ 0.90
$ 0.82



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except per share data)	2019			2018		2019			2018
Interest income
Interest and fees on loans and leases	$	417,370		$	269,167	$	983,890		$	806,935
Interest on investment securities:
Taxable	31,038			11,498		69,745			27,491
Tax-exempt	3,385			4,328		7,277			12,991
Interest on loans held-for-sale	1,408			3,625		2,832			5,281
Interest on other earning assets	6,607			3,089		13,739			8,722
Total interest income	459,808			291,707		1,077,483			861,420
Interest expense
Interest on deposits	70,900			27,479		149,154			74,228
Interest on borrowings	17,115			10,726		48,050			31,850
Total interest expense	88,015			38,205		197,204			106,078
Net interest income	371,793			253,502		880,279			755,342
Provision for credit losses	27,188			2,270		50,879			27,874
Net interest income after provision for credit losses	344,605			251,232		829,400			727,468
Noninterest income
Fees and service charges on deposit accounts	34,384			29,175		88,504			83,703
Leasing revenue	39,590			41,944		117,032			121,001
Wealth management revenue	4,241			—		4,241			—
Card and ATM revenue	23,315			20,074		62,470			58,313
Net (losses) gains on sales of loans and leases	(5,984		)	8,502		13,374			24,900
Servicing fee revenue	5,121			6,032		14,754			21,811
Net gains (losses) on investment securities	5,900			94		7,417			181
Other	(12,309		)	6,243		(312		)	20,620
Total noninterest income	94,258			112,064		307,480			330,529
Noninterest expense
Compensation and employee benefits	155,745			124,996		395,953			372,174
Occupancy and equipment	49,229			42,337		132,789			123,562
Lease financing equipment depreciation	19,408			19,525		57,797			54,744
Net foreclosed real estate and repossessed assets	2,203			3,880		9,281			12,654
Merger-related expenses	111,259			—		124,943			—
Other	87,776			55,685		194,781			201,308
Total noninterest expense	425,620			246,423		915,544			764,442
Income before income tax expense	13,243			116,873		221,336			293,555
Income tax (benefit) expense	(11,735		)	28,034		28,866			66,083
Income after income tax (benefit) expense	24,978			88,839		192,470			227,472
Income attributable to non-controlling interest	2,830			2,643		9,401			8,766
Net income attributable to TCF Financial Corporation	22,148			86,196		183,069			218,706
Preferred stock dividends	2,494			2,494		7,481			9,094
Impact of preferred stock redemption	—			—		—			3,481
Net income available to common shareholders	$	19,654		$	83,702	$	175,588		$	206,131
Earnings per common share
Basic	$	0.15		$	1.00	$	1.79		$	2.44
Diluted	0.15			1.00		1.79			2.43
Weighted-average common shares outstanding
Basic	128,575,171			83,762,625		97,876,262			84,522,519
Diluted	128,754,588			83,808,063		98,055,279			84,791,124

See accompanying notes to ~~Consolidated Financial Statements (unaudited).~~consolidated financial statements.

~~Chemical Financial Corporation~~

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 2018 2017
Net income $ 70,397
$ 40,459
$ 210,981
$ 140,077
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities available-for-sale arising during the period (16,634 ) 1,376
(55,863 ) 9,643
Reclassification adjustment for gains on realized income —
(1 ) (3 ) (168 )
Tax effect 3,493
(481 ) 11,732
(3,316 )
Net unrealized gains (losses) on securities available-for-sale, net of tax (13,141 ) 894
(44,134 ) 6,159
Unrealized gains on interest rate swaps designated as cash flow hedges 4,111
550
16,176
84
Reclassification adjustment for (gains) losses included in net income (662 ) 575
(1,009 ) 984
Tax effect (724 ) (374 ) (3,185 ) (374 )
Net unrealized gains on interest rate swaps designated as cash flow hedges, net of tax 2,725
751
11,982
694
Plan remeasurement —
11,238
—
11,238
Adjustment for pension and other postretirement benefits 142
537
426
1,613
Tax effect (30 ) (4,121 ) (90 ) (4,498 )
Net adjustment for pension and other postretirement benefits 112
7,654
336
8,353
Other comprehensive income (loss), net of tax (10,304 ) 9,299
(31,816 ) 15,206
Total comprehensive income, net of tax $ 60,093
$ 49,758
$ 179,165
$ 155,283



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Net income attributable to TCF Financial Corporation	$	22,148		$	86,196		$	183,069		$	218,706
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available for sale investment securities and interest-only strips	19,230			(13,434		)	87,223			(46,059		)
Net unrealized gains (losses) on net investment hedges	1,641			(1,904		)	(2,846		)	3,479
Foreign currency translation adjustment	(1,968		)	2,899			5,014			(4,136		)
Recognized postretirement prior service cost	(9		)	(9		)	(25		)	(26		)
Total other comprehensive income (loss), net of tax	18,894			(12,448		)	89,366			(46,742		)
Comprehensive income	$	41,042		$	73,748		$	272,435		$	171,964

See accompanying notes to consolidated financial statements.

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity (Unaudited)

At or For the Three Months Ended September 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, June 30, 2019	7,000	87,943,860	$	169,302	$	87,944	$	781,788		$	1,874,308		$	37,334	$	(265,017	)	$	2,685,659		$	24,858		$	2,710,517
Net income	—	—	—		—		—			22,148			—		—			22,148			2,830			24,978
Other comprehensive income (loss), net of tax	—	—	—		—		—			—			18,894		—			18,894			—			18,894
Reverse merger with Chemical Financial Corporation	—	65,539,678	—		65,540		2,687,153			—			—		265,863			3,018,556			—			3,018,556
Net investment by (distribution to) non-controlling interest	—	—	—		—		—			—			—		—			—			(4,375		)	(4,375		)
Repurchases of 780,716 shares of common stock	—	—	—		—		—			—			—		(32,310		)	(32,310		)	—			(32,310		)
Dividends on 5.70% Series C Preferred Stock	—	—	—		—		—			(2,494		)	—		—			(2,494		)	—			(2,494		)
Dividends on common stock of $0.35 per common share	—	—	—		—		—			(53,748		)	—		—			(53,748		)	—			(53,748		)
Stock compensation plans, net of tax	—	87,843	—		87		13,070			—			—		242			13,399			—			13,399
Change in shares held in trust for deferred compensation plans, at cost	—	—	—		—		(3,852		)	—			—		3,852			—			—			—
Balance, September 30, 2019	7,000	153,571,381	$	169,302	$	153,571	$	3,478,159		$	1,840,214		$	56,228	$	(27,370	)	$	5,670,104		$	23,313		$	5,693,417



Balance, June 30, 2018	7,000	88,166,532		$	169,302	$	88,167		$	790,933		$	1,649,449		$	(52,811	)	$	(164,107	)	$	2,480,933		$	23,646		$	2,504,579
Net income	—	—		—		—			—			86,196			—			—			86,196			2,643			88,839
Other comprehensive income (loss), net of tax	—	—		—		—			—			—			(12,448		)	—			(12,448		)	—			(12,448		)
Net investment by (distribution to) non-controlling interest	—	—		—		—			—			—			—			—			—			(5,135		)	(5,135		)
Repurchases of 477,804 shares of common stock	—	—		—		—			—			—			—			(24,026		)	(24,026		)	—			(24,026		)
Dividends on 5.70% Series C Preferred Stock	—	—		—		—			—			(2,494		)	—			—			(2,494		)	—			(2,494		)
Dividends on common stock of $0.295 per common share	—	—		—		—			—			(24,741		)	—			—			(24,741		)	—			(24,741		)
Common stock warrants exercised	—	40,304		—		40			(40		)	—			—			—			—			—			—
Stock compensation plans, net of tax	—	(5,791	)	—		(6		)	3,444			—			—			—			3,438			—			3,438
Change in shares held in trust for deferred compensation plans, at cost	—	—		—		—			1,519			—			—			(1,519		)	—			—			—
Balance, September 30, 2018	7,000	88,201,045		$	169,302	$	88,201		$	795,856		$	1,708,410		$	(65,259	)	$	(189,652	)	$	2,506,858		$	21,154		$	2,528,012

See accompanying notes to ~~Consolidated Financial Statements (unaudited).~~

consolidated financial statements.

~~Chemical Financial Corporation~~

Table of Contents

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of ~~Changes in Shareholders’~~ Equity (Unaudited)

~~(Unaudited)~~At or For the Nine Months Ended September 30, 2019 and 2018

(Dollars in thousands)
Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated other
comprehensive
income (loss)
Total
For the three months ended September 30, 2018
Beginning Balance $ 71,418
$ 2,205,402
$ 521,530
$ (47,351 ) $ 2,750,999
Comprehensive income 70,397
(10,304 ) 60,093
Cash dividends declared and paid of $0.34 per share (24,417 ) (24,417 )
Net shares issued under share-based compensation plans 20
316
336
Share-based compensation expense —
1,913
1,913
Ending Balance $ 71,438
$ 2,207,631
$ 567,510
$ (57,655 ) $ 2,788,924
For the three months ended September 30, 2017
Beginning Balance $ 71,131
$ 2,197,501
$ 404,939
$ (34,129 ) $ 2,639,442
Comprehensive income 40,459
9,299
49,758
Cash dividends declared and paid of $0.28 per share (19,965 ) (19,965 )
Net shares issued under share-based compensation plans 21
(3,813 ) (3,792 )
Share-based compensation expense —
7,646
7,646
Ending Balance $ 71,152
$ 2,201,334
$ 425,433
$ (24,830 ) $ 2,673,089
For the nine months ended September 30, 2018
Beginning Balance $ 71,207
$ 2,203,637
$ 419,403
$ (25,498 ) $ 2,668,749
Cumulative effect adjustment of change in accounting policy, net of tax impact⁽¹⁾
1,680
(341 ) 1,339
Comprehensive income 210,981
(31,816 ) 179,165
Cash dividends declared and paid of $0.90 per share (64,554 ) (64,554 )
Net shares issued under share-based compensation plans 231
(1,997 ) (1,766 )
Share-based compensation expense —
5,991
5,991
Ending Balance $ 71,438
$ 2,207,631
$ 567,510
$ (57,655 ) $ 2,788,924
For the nine months ended September 30, 2017
Beginning Balance $ 70,599
$ 2,210,762
$ 340,201
$ (40,036 ) $ 2,581,526
Cumulative effect adjustment of change in accounting policy, net of tax impact⁽²⁾
3,659
3,659
Comprehensive income 140,077
15,206
155,283
Cash dividends declared and paid of $0.82 per share (58,504 ) (58,504 )
Net shares issued under share-based compensation plans 553
(24,001 ) (23,448 )
Share-based compensation expense —
14,573
14,573
Ending Balance $ 71,152
$ 2,201,334
$ 425,433
$ (24,830 ) $ 2,673,089


⁽¹⁾	~~Refer to~~ ~~Note 1, Basis of Presentation and Significant Accounting Policies,~~ ~~Note 3, Investment Securities, Note 5, Other Real Estate Owned and Repossessed Assets and~~ ~~Note 9, Derivative Instruments and Balance Sheet Offsetting, for further details on the changes in accounting policy.~~


⁽²⁾	~~Refer to~~ ~~Note 1, Basis of Presentation and Significant Accounting Policies and~~ ~~Note 7, Loan Servicing Rights for further details on the changes in accounting policy.~~



	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		88,198,460		$	169,302		$	88,198		$	798,627		$	1,766,994		$	(33,138	)	$	(252,182	)	$	2,537,801		$	18,459		$	2,556,260
Net income	—		—		—			—			—			183,069			—			—			183,069			9,401			192,470
Other comprehensive income (loss), net of tax	—		—		—			—			—			—			89,366			—			89,366			—			89,366
Reverse merger with Chemical Financial Corporation	—		65,539,678		—			65,540			2,687,153			—			—			265,863			3,018,556			—			3,018,556
Net investment by (distribution to) non-controlling interest	—		—		—			—			—			—			—			—			—			(4,547		)	(4,547		)
Repurchases of 1,453,908 shares of common stock	—		—		—			—			—			—			—			(58,805		)	(58,805		)	—			(58,805		)
Dividends on 5.70% Series C Preferred Stock	—		—		—			—			—			(7,481		)	—			—			(7,481		)	—			(7,481		)
Dividends on common stock of $0.94 per common share	—		—		—			—			—			(102,368		)	—			—			(102,368		)	—			(102,368		)
Stock compensation plans, net of tax	—		(166,757	)	—			(167		)	(5,626		)	—			—			15,759			9,966			—			9,966
Change in shares held in trust for deferred compensation plans, at cost	—		—		—			—			(1,995		)	—			—			1,995			—			—			—
Balance, September 30, 2019	7,000		153,571,381		$	169,302		$	153,571		$	3,478,159		$	1,840,214		$	56,228		$	(27,370	)	$	5,670,104		$	23,313		$	5,693,417

Balance, December 31, 2017	4,007,000		87,473,708		$	265,821		$	87,474		$	791,465		$	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		87,473,708		265,821			87,474			791,465			1,577,195			(18,517		)	(40,797		)	2,662,641			17,827			2,680,468
Net income	—		—		—			—			—			218,706			—			—			218,706			8,766			227,472
Other comprehensive income (loss), net of tax	—		—		—			—			—			—			(46,742		)	—			(46,742		)	—			(46,742		)
Net investment by (distribution to) non-controlling interest	—		—		—			—			—			—			—			—			—			(5,439		)	(5,439		)
Redemption of Series B Preferred Stock	(4,000,000	)	—		(96,519		)	—			—			(3,481		)	—			—			(100,000		)	—			(100,000		)
Repurchases of 3,195,126 shares of common stock	—		—		—			—			—			—			—			(149,912		)	(149,912		)	—			(149,912		)
Dividends on 6.45% Series B Preferred Stock	—		—		—			—			—			—			—			—			—			—			—
Dividends on 5.70% Series C Preferred Stock	—		—		—			—			—			(9,094		)	—			—			(9,094		)	—			(9,094		)
Dividends on common stock of $0.885 per common share	—		—		—			—			—			(74,916		)	—			—			(74,916		)	—			(74,916		)
Common stock warrants exercised	—		533,548		—			534			(534		)	—			—			—			—			—			—
Common shares purchased by TCF employee benefit plans	—		17,594		—			17			698			—			—			—			715			—			715
Stock compensation plans, net of tax	—		176,195		—			176			5,284			—			—			—			5,460			—			5,460
Change in shares held in trust for deferred compensation plans, at cost	—		—		—			—			(1,057		)	—			—			1,057			—			—			—
Balance, September 30, 2018	7,000		88,201,045		$	169,302		$	88,201		$	795,856		$	1,708,410		$	(65,259	)	$	(189,652	)	$	2,506,858		$	21,154		$	2,528,012

See accompanying notes to ~~Consolidated Financial Statements (unaudited).~~consolidated financial statements.

~~Chemical Financial Corporation~~

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

~~(Unaudited)~~

Nine Months Ended September 30,
(Dollars in thousands) 2018 2017
Cash flows from operating activities
Net income $ 210,981
$ 140,077
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 21,856
15,778
Gains on sales of loans (9,772 ) (26,537 )
Proceeds from sales of loans 569,768
601,694
Loans originated for sale (599,671 ) (577,874 )
Net gains on sale of investment securities (3 ) (168 )
Net losses (gains) from sales/writedowns of other real estate and repossessed assets 473
(597 )
Depreciation of premises and equipment 12,735
13,444
Amortization of intangible assets 4,290
4,564
Additions to loan servicing rights (6,337 ) (6,461 )
Valuation change in loan servicing rights (2,529 ) 8,242
Net amortization of premiums and discounts on investment securities 14,174
13,933
Share-based compensation expense 5,991
14,573
Deferred income tax expense 18,134
36,508
Change in deferred tax valuation allowance (456 ) 60
Net increase in interest receivable and other assets (34,702 ) (148,180 )
Net increase in interest payable and other liabilities 12,583
40,181
Net cash provided by operating activities 217,515
129,237
Cash flows from investing activities
Debt securities – available-for-sale:
Proceeds from maturities, calls and principal reductions 223,049
227,854
Proceeds from sales and redemptions 4,215
17,085
Purchases (1,069,703 ) (1,041,744 )
Investment securities – held-to-maturity:
Proceeds from maturities, calls and principal reductions 91,317
73,762
Purchases (23,523 ) (109,704 )
Net increase in loans (661,400 ) (862,498 )
Proceeds from sales of other real estate and repossessed assets 10,156
15,569
Purchases of premises and equipment, net of disposals (9,144 ) (11,616 )
Proceeds from returns of investment in equity method investments 326
143
Net cash used in investing activities (1,434,707 ) (1,691,149 )
Cash flows from financing activities
Net increase in interest- and noninterest-bearing demand deposits and savings accounts 1,153,767
828,517
Net increase in time deposits 648,282
103,606
Net (decrease) increase in collateralized customer deposits and other short-term borrowings (367,765 ) 1,146,550
Proceeds from issuance of long-term borrowings 200,000
—
Repayment of long-term borrowings (142,000 ) (200,000 )
Cash dividends paid (64,554 ) (58,504 )
Proceeds from directors’ stock plans and exercise of stock options, net of shares withheld 3,016
3,353
Cash paid for payroll taxes upon conversion of share-based awards (4,782 ) (26,801 )
Net cash provided by financing activities 1,425,964
1,796,721
Net increase in cash and cash equivalents 208,772
234,809
Cash and cash equivalents at beginning of period 455,991
474,402
Cash and cash equivalents at end of period $ 664,763
$ 709,211

Supplemental disclosures of cash flow information:
Interest paid $ 93,150
$ 51,505
Net income tax payments 4,599
9,922
Non-cash activities:
Loans transferred to other real estate and repossessed assets 8,785
8,972
Net transfer of loans held-for-sale to loans held- for-investment (1,928 ) (2,651 )
Closed branch offices transferred to other assets —
1,634

Business combinations:
Fair value of tangible assets acquired (noncash) $ —
$ 420
Goodwill, loans servicing rights and other identifiable intangible assets acquired —
1,034
Liabilities assumed —
1,454



	Nine Months Ended September 30,
(In thousands)	2019			2018
Cash flows from operating activities
Net income	$	192,470		$	227,472
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	50,879			27,874
Share-based compensation expense	17,762			14,040
Depreciation and amortization	207,954			153,018
Provision (benefit) for deferred income taxes	(27,732		)	33,409
Net gains on sales of assets	(46,966		)	(28,977		)
Proceeds from sales of loans and leases held-for-sale	512,051			264,970
Originations of loans and leases held-for-sale, net of repayments	(548,371		)	(271,793		)
Impairment of loan servicing rights	4,520			—
Net change in other assets	(188,081		)	21,984
Net change in other liabilities	16,229			(1,849		)
Other, net	(34,793		)	(29,668		)
Net cash provided by (used in) operating activities	155,922			410,480
Cash flows from investing activities
Proceeds from sales of investment securities available-for-sale	1,993,274			—
Proceeds from maturities of and principal collected on investment securities available-for-sale	398,989			120,183
Purchases of investment securities available-for-sale	(1,424,344		)	(919,645		)
Proceeds from maturities of and principal collected on investment securities held-to-maturity	11,945			11,259
Purchases of investment securities held-to-maturity	(4,029		)	(2,187		)
Redemption of Federal Home Loan Bank stock	162,011			201,001
Purchases of Federal Home Loan Bank stock	(142,000		)	(199,000		)
Proceeds from sales of loans and leases	566,880			675,164
Loan and lease originations and purchases, net of principal collected	(674,459		)	735,840
Proceeds from sales of other assets	82,970			58,879
Purchases of premises and equipment and lease equipment	(108,404		)	(903,394		)
Net cash acquired (paid) in business combination	975,014			—
Other, net	(6,743		)	15,151
Net cash provided by (used in) investing activities	1,831,104			(206,749		)
Cash flows from financing activities
Net change in deposits	(15,296		)	163,442
Net change in short-term borrowings	(17,292		)	2,451
Proceeds from long-term borrowings	2,799,986			7,043,458
Payments on long-term borrowings	(3,838,454		)	(7,118,690		)
Payments on liabilities related to acquisition and portfolio purchase	(1,000		)	—
Redemption of Series B preferred stock	—			(100,000		)
Repurchases of common stock	(58,804		)	(149,912		)
Common shares sold to TCF employee benefit plans	—			715
Dividends paid on preferred stock	(7,481		)	(9,094		)
Dividends paid on common stock	(102,368		)	(74,916		)
Exercise of stock options	—			(997		)
Payments related to tax-withholding upon conversion of share-based awards	(5,813		)	(6,563		)
Net investment by (distribution to) non-controlling interest	(4,547		)	(5,439		)
Net cash provided by (used in) financing activities	(1,251,069		)	(255,545		)
Net change in cash and due from banks	735,957			(51,814		)
Cash and cash equivalents at beginning of period	587,057			621,782
Cash and cash equivalents at end of period	$	1,323,014		$	569,968
Supplemental disclosures of cash flow information
Cash paid (received) for:
Interest on deposits and borrowings	$	192,793		$	99,336
Income taxes, net	10,367			(21,035		)
Noncash activities:
Transfer of loans and leases to other assets	73,314			77,704
Transfer of loans and leases from held for investment to held for sale, net	1,837,445			644,488

See accompanying notes to ~~Consolidated Financial Statements (unaudited).~~consolidated financial statements.

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~~Chemical Financial Corporation~~

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2018~~

Note 1:1. Basis of Presentation

On August 1, 2019 (the "Merger Date"), TCF Financial Corporation, a Delaware corporation ("Legacy TCF"), merged with and ~~Significant Accounting Policies~~

~~Nature of Operations~~

into Chemical Financial Corporation, a Michigan corporation ("~~Corporation"~~Chemical"), with Chemical continuing as the surviving legal corporation (the "Merger"). Immediately following the Merger, Chemical’s wholly owned bank subsidiary, Chemical Bank, a Michigan state-chartered bank, merged with and into Legacy TCF’s wholly owned bank subsidiary, TCF National Bank, a national banking association, with TCF National Bank surviving the merger (“TCF Bank”). Upon completion of the Merger, Chemical was renamed TCF Financial Corporation. TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or ~~"Chemical"~~the "Corporation") ~~operates in a single operating segment — commercial banking. The Corporation~~, is a financial holding company, headquartered in Detroit, ~~Michigan,~~Michigan. TCF Bank has its main office in Sioux Falls, South Dakota. References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis.

The Merger was accounted for as a reverse merger using the acquisition method of accounting, which means that ~~operates through one~~ ~~commercial bank,~~for accounting and financial reporting purposes, Legacy TCF was deemed to have acquired Chemical ~~Bank.~~in the Merger, even though Chemical was the legal acquirer. Accordingly, Legacy TCF's historical financial statements are the historical financial statements of the combined company for all periods before the Merger Date. TCF's results of operations for the third quarter of 2019 and the first nine months of 2019 include the results of operations of Chemical on and after August 1, 2019. Results for periods before August 1, 2019 reflect only those of Legacy TCF and do not include the results of operations of Chemical. The number of shares issued and outstanding, earnings per share, additional paid-in-capital, dividends paid and all references to share quantities of TCF have been retrospectively adjusted to reflect the equivalent number of shares issued to holders of Legacy TCF common stock in the Merger. See Note 2. Merger for further information. In addition, the assets and liabilities of Chemical as of the Merger Date have been recorded at their estimated fair value and added to those of Legacy TCF.

TCF Bank operates ~~within~~bank branches in Michigan, ~~Northeast~~Minnesota, Illinois, Ohio, Indiana, Colorado, Wisconsin, Arizona and ~~Northern Indiana as a Michigan state-chartered commercial bank. Chemical~~South Dakota (TCF's "primary banking markets"). Through its direct subsidiaries, TCF Bank ~~operates through an internal organizational structure of six regional banking units and offers~~provides a full range of ~~traditional~~consumer-facing and commercial services, including consumer and commercial banking, trust and ~~fiduciary~~wealth management, and specialty leasing and lending products and services to ~~the residents~~consumers, small businesses and business customers in the Corporation’s geographical market areas. The products and services offered by the regional banking units, through branch banking offices, are generally consistent throughout the Corporation, as is the pricing of those products and services. The marketing of products and services throughout the Corporation’s regional banking units is generally uniform, as many of the markets served by the regional banking units overlap. The distribution of products and services is generally uniform throughout the Corporation’s regional banking units and is achieved primarily through retail branch banking offices, automated teller machines and electronically accessed banking products.commercial customers.

The Corporation’s primary sources of revenue are interest from its loan products and investment securities, service charges and fees from customer deposit accounts, wealth management revenue and net gain on sale of loans and other mortgage banking revenue.

~~Basis of Presentation and Principles of Consolidation~~

The accompanying unaudited ~~Consolidated Financial Statements of the Corporation and its subsidiaries~~consolidated financial statements have been prepared in ~~accordance~~conformity with ~~United States ("~~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") ~~rules and interpretive releases and prevailing practices within the banking industry and Rule 10-01 of Regulation S-X.~~. Accordingly, the ~~interim Consolidated Financial Statements~~consolidated financial statements do not include all of the information and ~~footnotes required by GAAP~~notes necessary for complete financial statements ~~and should be read~~ in ~~conjunction~~conformity with ~~the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017.~~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. These interim unaudited financial statements should be read in connection with the Legacy TCF audited Consolidated Financial Statements ~~contain all adjustments believed necessary~~and notes thereto, at and for the year ended December 31, 2018, which were filed as Exhibit 99.1 to ~~present fairly~~TCF's Current Report on Form 8-K filed with the SEC on August 1, 2019, and together with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K of Legacy TCF 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 ~~condition~~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. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

In connection with the Merger, effective August 1, 2019, TCF renamed its Wholesale Banking segment to Commercial Banking to align with the way TCF is now managed. In addition, activity that was related to small business banking and private banking were moved from the Wholesale Banking (now named Commercial Banking) segment to the Consumer Banking segment. The revised presentation of ~~operations~~previously reported segment data has been applied retroactively for all periods presented in these financial statements. See Note 25. Reportable Segments for further information.

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Note 2. Merger

As described in Note 1. Basis of Presentation, on August 1, 2019, we completed our Merger with Legacy TCF.

The Merger was an all-stock transaction. Pursuant to the merger agreement, on the Merger Date, each holder of Legacy TCF common stock received 0.5081 shares (the "Exchange Ratio") of TCF's common stock for each share of Legacy TCF common stock held. Each outstanding share of common stock of Chemical remained outstanding and was unaffected by the Merger other than by the change of the Corporation’s name from Chemical Financial Corporation ~~for~~to TCF Financial Corporation. As of the ~~periods presented. All significant income and expenses are recorded~~effective time of the Merger on August 1, 2019, TCF Financial had approximately 153.5 million shares of common stock outstanding. On the Merger Date, the shares of Legacy TCF common stock, which previously traded under the ticker symbol "TCF" on the ~~accrual basis. Intercompany accounts~~New York Stock Exchange (the "NYSE") ceased trading on, and ~~transactions~~were delisted from, the NYSE. Following the Merger, TCF Financial common stock continues to trade on the Nasdaq Stock Market (“NASDAQ”), but its ticker symbol changed from "CHFC" to "TCF" effective August 1, 2019.

Pursuant to the merger agreement, each outstanding share of Legacy TCF 5.70% Series C Non-Cumulative Perpetual Preferred Stock, with a liquidation preference of $25,000 per share (the "Legacy TCF Preferred Stock") was converted into the right to receive 1 share of newly created 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF, with a liquidation preference of $25,000 per share (the "New TCF Preferred Stock"), and each depository share representing 1/1000^th of a share of Legacy TCF Preferred Stock was converted into one depositary share representing 1/1000th of a share of New TCF Preferred Stock. Immediately following the effective time of the Merger, as of August 1, 2019, TCF Financial had 7,000 shares of New TCF Preferred Stock outstanding and 7.0 million related depositary shares outstanding.

The Merger constituted a business combination and was accounted for as a reverse merger using the acquisition method of accounting. As a result, Legacy TCF was the accounting acquirer, and Chemical was the legal acquirer and the accounting acquiree. Therefore, the historical financial statements of Legacy TCF became the historical financial statements of the combined company. In addition, the assets, including the intangible assets identified, and liabilities of Chemical as of the Merger Date, have been ~~eliminated~~recorded at their estimated fair value and added to those of Legacy TCF. In many cases, the determination of fair value required management to make estimates about discount rates, expected future cash flows, market conditions and other future events that are highly subjective in ~~preparing~~nature and subject to change.

As the ~~Consolidated~~legal acquirer, Chemical (now TCF Financial ~~Statements. Operating~~Corporation) issued approximately 81.9 million shares of TCF Financial common stock in connection with the Merger, which represented approximately 53% of the voting interests in TCF Financial upon completion of the Merger. Guidance in Accounting Standards Codification ("ASC") 805-40-30-2 explains that the purchase price in a reverse acquisition is determined based on “the number of equity interests the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition.” The first step in calculating the purchase price in the Merger is to determine the ownership of the combined company following the Merger. The table below summarizes the ownership of the combined company (TCF Financial) following the Merger, as well as the market capitalization of the combined company using shares of Chemical and Legacy TCF common stock outstanding at July 31, 2019 and Chemical’s closing price on July 31, 2019.



(In thousands)	TCF Financial Ownership and Market Value Table
	Number of Chemical Outstanding Shares	Percentage Ownership		Market Value at $42.04 Chemical Share Price
Chemical shareholders	71,559	46.62	%	$	3,008,330
Legacy TCF shareholders	81,920	53.38		3,443,938
Total	153,479	100		$	6,452,268

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Next, the hypothetical number of shares Legacy TCF would have to issue to give Chemical owners the same percentage ownership in the combined company is calculated in the table below (based on shares of Legacy TCF common stock outstanding at July 31, 2019):



(In thousands)	Hypothetical Legacy TCF Ownership
	Number of Legacy TCF Outstanding Shares	Percentage Ownership
Chemical shareholders	140,836	46.62	%
Legacy TCF shareholders	161,229	53.38
Total	302,065	100	%

Finally, the purchase price is calculated based on the number of hypothetical shares of Legacy TCF common stock issued to Chemical shareholders multiplied by the share price as demonstrated in the table below (amounts in thousands except per share data).



(In thousands, except per share data)
Number of hypothetical Legacy TCF shares issued to Chemical shareholders	140,835,967
Legacy TCF market price per share as of July 31, 2019	$	21.38
Purchase price determination of hypothetical Legacy TCF shares issued to Chemical shareholders	3,011,073
Value of Chemical stock options hypothetically converted to options to acquire shares of Legacy TCF common stock	7,335
Cash in lieu of fractional shares	148
Purchase price consideration	$	3,018,556

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The following table provides the purchase price allocation as of the Merger Date and the Chemical assets acquired and liabilities assumed at their estimated fair value as of the Merger Date as recorded by TCF. We recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates are considered preliminary and subject to adjustment for up to one year after the Merger Date. While we believe that the information available on the Merger Date provided a reasonable basis for estimating fair value, we expect that we may obtain additional information and evidence during the measurement period that would result in changes to the estimated fair value amounts. The measurement period ends on the earlier of one year after the Merger Date or the date we are able to determine that we have obtained all necessary information about the facts and circumstances that existed as of Merger Date. Subsequent adjustments to fair value, if necessary, will be reflected in our future filings. These adjustments include: (i) changes in the estimated fair value of loans acquired, (ii) changes in the estimated fair value of intangible assets acquired, (iii) changes in deferred tax assets related to fair value estimates and changes in the expected realization of items considered to be net operating loss carryforwards and (iv) changes in goodwill as a result of the net effect of any adjustments.



(In thousands)
Purchase price consideration:
Stock	$	3,018,556
Fair value of assets acquired:
Cash and cash equivalents	975,014
Federal Home Loan Bank and Federal Reserve Bank stocks	218,582
Investment securities	3,774,738
Loans held-for-sale	44,532
Loans and leases	15,726,213
Premises and equipment	140,219
Loan servicing rights	59,567
Other intangible assets	201,568
Net deferred tax asset⁽¹⁾	49,345
Other assets	553,796
Total assets acquired	21,743,574
Fair value of liabilities assumed:
Deposits	16,418,019
Short-term borrowings	2,629,426
Long-term borrowings	442,323
Other liabilities	345,604
Total liabilities assumed	19,835,372
Fair value of net identifiable assets	1,908,202
Goodwill resulting from Merger⁽²⁾	$	1,110,354


(1)	Net deferred tax asset includes acquisition-related fair value adjustments, loss and tax credit carry forwards, mortgage servicing rights and core deposit and customer intangibles.


(2)	The goodwill recorded was primarily attributable to the synergies and economies of scale expected from combining the operations of Legacy TCF and Chemical.

As described in more detail in Note 3. Summary of Significant Accounting Policiesbelow, all Chemical loans and leases were recorded at their estimated fair value as of the Merger Date with no carryover of the related allowance for loans and lease losses. These loans were segregated into two classifications at acquisition, purchased credit impaired (“PCI”) loans accounted for under the provisions of Accounting Standards Codification ("ASC") Topic 310-30, and purchased nonimpaired loans, also referred to as purchased loans. The excess of cash flows expected to be collected over the estimated fair value of PCI loans is referred to as the accretable yield and is accreted into interest income over the estimated remaining life of the loan using the effective yield method. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayment and estimates of future credit losses expected to be incurred, is referred to the nonaccretable difference.

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Information regarding acquired loans included in net loans and leases acquired at the Merger Date was as follows:



(In thousands)
PCI loans:
Contractually required payments receivable	$	458,374
Nonaccretable difference	(105,031		)
Expected cash flows	353,343
Accretable yield	39,733
Fair value of PCI loans	$	313,610

Purchased nonimpaired loans and leases:
Unpaid principal balance	$	15,636,020
Fair value discount	(223,417		)
Fair value at acquisition	15,412,603
Total fair value at acquisition	$	15,726,213

Supplemental disclosures of cash flow information related to investing and financing activities regarding the Merger are as follows for the nine months ended September 30, 2019:



(In thousands)
Business combination
Fair value of tangible assets acquired	$	21,482,439
Goodwill, loan servicing rights and other identifiable intangible assets acquired	1,371,489
Liabilities assumed	19,835,372
Common stock and stock options converted	3,018,556

Other intangible assets consisted of core deposits and customer relationship intangibles with estimated fair values at the Merger Date of $177.8 million and $23.8 million, respectively. Core deposit intangibles are being amortized over a weighted-average life of ten years on an accelerated basis. Customer relationship intangibles are being amortized over a weighted-average life of 15.6 years based on expected economic benefits of the underlying intangible assets. The weighted-average life of amortizable intangibles acquired in the Merger was eleven years.

As a result of the Merger, we recorded $1.1 billion of goodwill. Due to the timing of the Merger, we are in the process of completing our analysis of the allocation of goodwill across business segments, and, therefore, goodwill is presented as part of Enterprise Services at September 30, 2019. The goodwill recorded is not deductible for income tax purposes.

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Pro Forma Combined Results of Operations The following pro forma financial information presents the consolidated results of operations of Legacy TCF and Chemical as if the Merger had occurred as of January 1, 2018 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustments to acquired time deposits and borrowings and other debt and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2018. Merger-related expenses incurred by TCF during the three and nine months ended September 30, 2019 are not reflected in the pro forma amounts. The pro forma information does not necessarily ~~indicative of~~reflect the results of operations that ~~may be expected~~would have occurred had Legacy TCF merged with Chemical at the beginning of 2018. Anticipated cost savings that have not yet been realized are also not reflected in the pro forma amounts for the three and nine months ended September 30, 2019 and 2018.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2019		2018		2019		2018
Net interest income and other noninterest income	$	536,165	$	570,396	$	1,654,571	$	1,693,537
Net income	125,560		156,977		435,003		434,686
Net income available to common shareholders	123,066		154,483		427,522		422,111
Earnings per share:
Basic	$	0.81	$	1.00	$	2.79	$	2.71
Diluted	0.81		0.99		2.77		2.69

Note 3. Summary of Significant Accounting Policies

Accounting policies in effect at December 31, 2018, as previously disclosed in Note 2. Summary of Significant Accounting Policies in Legacy TCF’s audited Consolidated Financial Statements at and for the year ~~ending~~ended December 31, ~~2018.~~2018, which were filed as Exhibit 99.1 to TCF’s Current Report on Form 8-K filed with the SEC on August 1, 2019, remain significantly unchanged and have been followed similarly as in previous periods except for the lease financing accounting policy, resulting from the adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) and related ASUs, and certain policies added as a result of the Merger, as described below.

~~Use~~Business Combinations Pursuant to the guidance of ~~Estimates~~

~~Management makes estimates~~ASC Topic 805 ("ASC 805"), TCF recognized assets acquired, including identified intangible assets, and ~~assumptions that affect~~ the ~~amounts reported~~liabilities assumed in mergers and acquisitions at their fair values as of the acquisition date, with the acquisition and merger-related transaction and restructuring costs expensed in the ~~Consolidated Financial Statements~~period incurred.

ASC 805 affords a measurement period beyond the acquisition date that allows the opportunity to finalize the acquisition accounting in the event that new information is identified that existed as of the acquisition date but was not known or available at that time. This measurement period ends on the earlier of one year after the acquisition or the date information about the facts and ~~accompanying footnotes. Estimates~~circumstances that existed at the acquisition are ~~particularly~~available. TCF anticipates that measurement period adjustments may arise from adjustments to the fair values of Chemical's assets and liabilities recorded at the Merger Date, as additional information and evidence is obtained. In the event that a measurement period adjustment is identified, TCF will recognize the adjustment as part of its acquisition accounting, which may result in an adjustment to goodwill in the period the adjustment was identified.

See Note 2. Merger for further information.

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Loans and Leases Acquired in a Business Combination We record loans and leases acquired in a business combination at fair value at the acquisition date and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Purchased loans are evaluated at the acquisition date and classified as either (i) loans purchased without evidence of deteriorated credit quality since origination, referred to as purchased loans, or (ii) loans purchased with evidence of deteriorated credit quality since origination for which it is probable that all contractually required payments will not be collected, referred to as PCI loans. PCI loans are considered to be impaired and are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). In determining whether a purchased loan should be classified as a PCI loan, we must make numerous assumptions, interpretations and judgments using internal and third-party credit quality information to determine whether or not it is probable that we will be able to collect all contractually required payments. This is a point in time assessment and is inherently subjective due to the nature of the available information and judgment involved. Evidence of credit quality deterioration as of the acquisition date may include statistics such as past due and nonaccrual status, recent borrower credit scores and loan-to-value percentages. The excess of cash flows expected to be collected over the estimated fair value of PCI loans is referred to as the accretable yield and is accreted into interest income over the estimated remaining life of the loan using the effective yield method. We estimate the expected cash flows based on the expected remaining life of the loans, which includes the effects of estimated prepayments and estimates of future credit losses. Cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant ~~change~~change. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, is referred to as the nonaccretable difference.

We do not classify PCI loans as nonaccrual loans subsequent to acquisition because the loans are recorded at net realizable value based on the principal and interest expected to be collected on the loan. Judgment is required to estimate the timing and amount of cash flows expected to be collected when the loans are not performing in accordance with the original contractual terms.

Purchased loans outside the scope of ASC 310-30 are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs. For purchased loans, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and the discount is accreted to interest income over the life of the loan. Subsequent to the purchase date, the method used to evaluate the sufficiency of the credit discount is similar to originated loans, and if necessary, additional reserves are recognized in the allowance for loan and lease losses.

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.

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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 noninterest expense. Operating lease payments received are recognized as lease income when due and recorded as a component of leasing and equipment finance noninterest income. An allowance for lease losses is not provided on operating leases.

See Note 7. Loans and Leases for further information.

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. TCF 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 noninterest 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 noninterest expense.

See Note 12. Operating Lease Right-of-Use Assets and Liabilities for further information.

Loan Servicing Rights Loan servicing rights ("LSRs") are recognized as assets or liabilities as a result of selling residential mortgage and commercial real estate loans in the secondary market while retaining the right to service these loans and receive servicing income over the life of the loan, and from acquisitions of other banks that had LSRs. An LSR is recorded at estimated fair value when initially recognized. Fair value is determined by the present value of expected cash flows received in excess of a market servicing rate. If the amount earned to service assets is equal to the market rate, no value is recorded. Subsequently, LSRs are accounted for at the lower of amortized cost or fair value and amortized in proportion to and over the period of net servicing income. Unexpected prepayments of mortgage loans result in increased amortization of LSRs, as the remaining book value of the LSRs is expensed at the time of prepayment. LSRs are assessed quarterly for impairment. See Note 11. Loan Servicing Rights for further information.

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Recently Adopted Accounting Pronouncements

Effective January 1, 2019, TCF 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 the 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, TCF 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 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, TCF 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, TCF 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.

Effective January 1, 2019, TCF 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, TCF 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

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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, TCF recorded right-of-use assets and lease liabilities totaling $91.9 million and $112.8 million, respectively. TCF also recorded additional right-of-use assets and lease liabilities totaling $39.8 million and $41.6 million on August 1, 2019 as a result of the Merger. 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 but Not Yet Adopted Accounting Pronouncements

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

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

In 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 which adoption method will be selected as well as the related potential impact of this guidance on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Subsequent to adoption, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance largely remains unchanged. 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 on a prospective basis. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets (including off-balance sheet exposure), including trade and other receivables, debt securities held to maturity, loans, net investments in leases and purchased financial assets with credit deterioration. The ASU requires the use of a current expected credit loss ("CECL") methodology to determine the allowance for credit losses for loans and debt securities held to maturity. CECL requires loss estimates for the remaining estimated life of the asset to be measured using historical loss data as well as reasonable and supportable forecasts based on current and forecasted 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

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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 January 1, 2020 with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. CECL represents a significant change in GAAP and is expected to 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, the current economic conditions, and forecasted macroeconomic conditions at the date of adoption. Additionally, industry practice and interpretation of the ASUs continues to evolve which may impact management's implementation of the standard.

TCF has established a governance structure to implement these ASUs and has developed a majority of the methodology and models to be used upon adoption. Based on parallel runs of the CECL process that TCF has performed alongside our current allowance for loan and lease losses process, we preliminarily estimated that the adoption of the standard will increase the allowance for loan and lease losses between 35% to 45% on Legacy TCF portfolios, when compared to current allowance for loan and lease loss levels. At September 30, 2019, Legacy TCF loan and lease portfolios totaled approximately $17.8 billion with a corresponding allowance for loans and lease losses of approximately $117.1 million. The largest impact is anticipated to be to our consumer segment given the longer duration of the portfolios. Management is in the process of finalizing model validations and approval of all key design decisions through its governance structure, which includes decisions about the methodology for estimating reserves for unfunded commitments and disclosures. The estimated impact of the standard depends on the composition of the portfolio, credit quality, economic conditions and forecasts at the time of adoption, as well as final decisions by management, all of which could result in a change to management’s estimate.

With the close of the Merger on August 1, 2019, management is evaluating the impact of CECL on the acquired legacy Chemical portfolio which will then be included in the combined portfolio of TCF upon adoption. The loans and leases acquired in the Merger were recorded at estimated fair value on the Merger Date, which includes an estimate of credit losses. Under current GAAP, an allowance for loan and lease losses is not recorded on these loans and leases until there is evidence of credit deterioration post acquisition. However, upon adoption of CECL an allowance for loan and lease loss will need to be recorded for the acquired loans based on the lifetime loss concept within CECL. We are in the process of developing CECL assumptions on the acquired Chemical portfolios with those used by Legacy TCF. Since these assumptions could materially impact the estimate of the allowance for loan and lease losses ~~expected~~under CECL, we are unable to estimate the impact on the Chemical portfolio at this time.

The initial increase to TCF's allowance for loan and lease losses will be recorded as an adjustment to beginning of the year retained earnings. Post adoption, as loans and leases are added to the portfolio, we expect higher levels of allowance for loan and lease losses determined by CECL assumptions, resulting in higher levels of provision for credit losses. Management will continue to refine this process during the fourth quarter of 2019 as well as consider the impacts the Merger will have on the adoption of the standard.

Note 4. Cash and Cash Equivalents

At September 30, 2019 and December 31, 2018, TCF Bank was required by Federal Reserve regulations to maintain reserves of $149.6 million and $106.2 million, respectively, in cash ~~flows~~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 and derivatives. TCF maintained restricted cash totaling $72.7 million and $38.3 million at September 30, 2019 and December 31, 2018, respectively.

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Note 5. Federal Home Loan Bank and Federal Reserve Bank Stocks

Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stocks were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
FHLB stock, at cost	$	184,483	$	54,019
FRB stock, at cost	105,755		37,635

The investments in FHLB stock are required investments related to TCF's membership and borrowings in the FHLB of Des Moines, and additional current borrowings from ~~acquired loans, income taxes~~the FHLB of Indianapolis and Cincinnati. TCF's investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the Federal Home Loan Banks and actions of their regulator, the Federal Housing Finance Agency. The amount of FRB stock that TCF Bank is required to hold is based on TCF Bank's capital structure. TCF periodically evaluates investments for other than temporary impairment. There was no impairment of these investments at September 30, 2019 and December 31, 2018.

Note 6. Investment Securities

The amortized cost and fair value of investment securities were as follows:



	Investment Securities Available-for-sale, At Fair Value
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At September 30, 2019
Debt securities:
Government and government-sponsored enterprises	$	247,666	$	2	$	521	$	247,147
Obligations of states and political subdivisions	779,263		11,017		609		789,671
Mortgage-backed:
Agency mortgage-backed securities	3,456,110		66,929		4,327		3,518,712
Non-agency mortgage-backed securities	—		—		—		—
Agency collateralized mortgage obligations	565,959		12,484		101		578,342
Non-agency collateralized mortgage obligations	445,174		934		570		445,538
Total mortgage-backed debt securities	4,467,243		80,347		4,998		4,542,592
Corporate debt and trust preferred securities	450		—		25		425
Total debt securities available-for-sale	5,494,622		91,366		6,153		5,579,835
Total investment securities available-for-sale	$	5,494,622	$	91,366	$	6,153	$	5,579,835
At December 31, 2018
Debt securities:
Government and government-sponsored enterprises	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions	566,304		46		9,479		556,871
Mortgage-backed:
Agency mortgage-backed securities	1,845,451		8,026		26,728		1,826,749
Non-agency mortgage-backed securities	—		—		—		—
Agency collateralized mortgage obligations	85,245		1,196		—		86,441
Non-agency collateralized mortgage obligations	4		—		—		4
Total mortgage-backed debt securities	1,930,700		9,222		26,728		1,913,194
Corporate debt and trust preferred securities	—		—		—		—
Total debt securities available-for-sale	2,497,004		9,268		36,207		2,470,065
Total investment securities available-for-sale	$	2,497,004	$	9,268	$	36,207	$	2,470,065

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	Investment Securities Held-to-Maturity
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At September 30, 2019
Agency mortgage-backed securities	$	140,324	$	6,122	$	194	$	146,252
Corporate debt and trust preferred securities	3,676		—		—		3,676
Total investment securities held-to-maturity	$	144,000	$	6,122	$	194	$	149,928
At December 31, 2018
Agency mortgage-backed securities	$	146,052	$	1,460	$	1,045	$	146,467
Corporate debt and trust preferred securities	2,800		—		—		2,800
Total investment securities held-to-maturity	$	148,852	$	1,460	$	1,045	$	149,267

Gross unrealized losses and fair value of investment securities aggregated by investment category and the ~~valuation~~length of ~~loan servicing rights. Actual results could differ from these estimates.~~

~~Reclassifications~~

~~Certain amounts appearing in~~time the Consolidated Financial Statements and notes thereto for prior periods have been reclassified to conform to the current presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported, except in case of the cumulative effect adjustment of change in accounting policy as noted.

~~Recently Adopted Accounting Policy~~

Effective January 1, 2017, the Corporation elected to account for all loan servicing rights ("LSRs") previously accounted for under the lower of cost or fair value method under the fair value method. The guidance in Accounting Standards Codification Subtopic 860-50, "Transfers and Servicing-Servicing Assets and Liabilities" provides that an entity may make an irrevocable decision to subsequently measure a class of servicing assets and servicing liabilities at fair value at the beginning of any fiscal year. The guidance allows for the Corporation to apply this election prospectively to all new and existing servicing assets and

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

servicing liabilities. Management believes this election will provide more comparable results to peers as many of those within our industry group account for loan servicing rights under the fair value method. The change in accounting policy in the first quarter of 2017 resultedsecurities were in a ~~cumulative adjustment to increase retained earnings in the amount of $3.7 million, net of taxes.~~

~~Recently Adopted Accounting Principles~~continuous loss position were as follows:



	At September 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
Investment securities available-for-sale
Debt securities:
Government and government sponsored enterprises	$	233,756	$	521	$	—	$	—	$	233,756	$	521
Obligations of states and political subdivisions	273,967		609		—		—		273,967		609
Mortgage-backed:
Agency mortgage-backed securities	241,408		1,479		210,896		2,848		452,304		4,327
Agency collateralized mortgage obligations	37,750		101		—		—		37,750		101
Non-agency collateralized mortgage obligations	152,895		570		—		—		152,895		570
Total mortgage-backed debt securities	432,053		2,150		210,896		2,848		642,949		4,998
Corporate debt and trust preferred securities	425		25		—		—		425		25
Total debt securities available-for-sale	940,201		3,305		210,896		2,848		1,151,097		6,153
Total investment securities available-for-sale	$	940,201	$	3,305	$	210,896	$	2,848	$	1,151,097	$	6,153
Investment securities held-to-maturity
Agency mortgage-backed securities	4,031		52		11,674		142		15,705		194
Total investment securities held-to-maturity	$	4,031	$	52	$	11,674	$	142	$	15,705	$	194



	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
Investment securities carried at fair value
Debt securities:
Obligations of states and political subdivisions	$	3,620	$	—	$	526,817	$	9,479	$	530,437	$	9,479
Agency mortgage-backed securities	102,709		184		838,482		26,544		941,191		26,728
Total debt securities available-for-sale	106,329		184		1,365,299		36,023		1,471,628		36,207
Total investment securities available-for-sale	$	106,329	$	184	$	1,365,299	$	36,023	$	1,471,628	$	36,207
Investment securities held-to-maturity
Agency mortgage-backed securities	3,074		14		31,738		1,031		34,812		1,045
Total investment securities held-to-maturity	$	3,074	$	14	$	31,738	$	1,031	$	34,812	$	1,045

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At September 30, 2019 there were 1,056 investment securities in an unrealized loss position. We have assessed each investment security with unrealized losses 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 investment securities prior to recovery of the amortized cost. Unrealized losses on investment securities were primarily due to changes in interest rates.

The gross gains and losses on sales of investment securities were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2019		2018		2019		2018
Gross realized gains	$	7,717	$	—	$	10,872	$	—
Gross realized losses	1,849		—		3,491		—
Recoveries on previously impaired investment securities held-to-maturity	32		94		36		181
Net gains (losses) on investment securities	$	5,900	$	94	$	7,417	$	181

The amortized cost and fair value of investment securities by final contractual maturity were as follows. Securities with multiple maturity dates are classified in the period of final maturity. The final contractual maturities do not consider possible prepayments and therefore expected maturities may differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	At September 30, 2019				At December 31, 2018
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment Securities Available-for-Sale
Due in one year or less	$	60,739	$	60,652	$	—	$	—
Due in 1-5 years	199,777		199,399		24,464		24,375
Due in 5-10 years	483,336		492,755		509,832		503,768
Due after 10 years	4,750,770		4,827,029		1,962,708		1,941,922
Total investment securities available-for-sale	$	5,494,622	$	5,579,835	$	2,497,004	$	2,470,065
Investment Securities Held-to-Maturity
Due in 1-5 years	$	3,150	$	3,150	$	2,400	$	2,400
Due in 5-10 years	460		467		430		432
Due after 10 years	140,390		146,311		146,022		146,435
Total investment securities held-to-maturity	$	144,000	$	149,928	$	148,852	$	149,267

At September 30, 2019 and December 31, 2018, investment securities with a carrying value of $761.4 million and $1.6 million, respectively, were pledged as collateral to secure certain deposits and borrowings.

Note 7. Loans and Leases

Loans and leases were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Commercial loan and lease portfolio:
Commercial and industrial	$	10,810,534	$	6,220,632
Commercial real estate	8,876,779		2,908,313
Lease financing	2,594,373		2,530,163
Total commercial loan and lease portfolio	22,281,686		11,659,108
Consumer loan portfolio:
Residential mortgage	6,057,404		2,335,835
Consumer installment	1,562,252		2,003,572
Home equity	3,609,410		3,074,505
Total consumer loan portfolio	11,229,066		7,413,912
Total loans and leases⁽¹⁾	$	33,510,752	$	19,073,020



~~Standard~~(1)	~~Description~~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 loan and lease adjustments was a net deferred cost of $234.4 million and $1.5 million at September 30, 2019 and December 31, 2018, respectively.

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Acquired Loans and Leases TCF acquired loans and leases at fair value in the Merger and in previous acquisitions completed by Legacy TCF. Certain loans acquired were classified as PCI and are accounted for under ASC 310-30, which recognizes the expected shortfall of expected future cash flows, as compared to the contractual amount due, as nonaccretable difference. Any excess of the net present value of expected future cash flows over the acquisition date fair value is recognized as the accretable yield. The accretable yield is recognized over the expected remaining life of the acquired loan. In the event an acquired loan is renewed or extended, the loan continues to be accounted for as an acquired loan in accordance with ASC 310-30.

The carrying value and changes in accretable yield of all PCI loans were as follows:



	At or For the Three Months Ended September 30,						At or For the Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Balance of PCI loans, beginning of period	$	2,273		$	7,033		$	3,816		$	11,844
Accretable Yield
Balance, beginning of period	$	401		$	439		$	961		$	1,051
Addition attributable to the Merger	39,733			—			39,733			—
Accretion recognized in interest income	(4,312		)	(38		)	(5,015		)	(188		)
Net reclassification (to) from nonaccretable difference	(517		)	—			179			370
Payments received	(824		)	26			(1,377		)	(806		)
Balance, end of period	$	34,481		$	427		$	34,481		$	427
Balance of PCI loans, end of period	$	293,713		$	4,802		$	293,713		$	4,802

Leases Effective January 1, 2019, TCF 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 three and nine months ended September 30, 2019.

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



(In thousands)	At September 30, 2019
Carrying amount	$	2,682,097
Unguaranteed residual assets	148,669
Net direct fees and costs and unearned income	(236,393		)
Total net investment in direct financing and sales-type leases	$	2,594,373

The carrying amount of the direct financing and sales-type leases subject to residual value guarantees was $263.3 million at September 30, 2019.

The components of total lease income were as follows:



	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2019
Interest income - loans and leases:
Interest income on net investment in direct financing and sales-type leases	$	32,832	$	98,116
Leasing revenue (noninterest income):
Lease income from operating lease payments	25,444		76,140
Profit (loss) recorded on commencement date on sales-type leases	7,983		22,289
Gains (losses) on sales of leased equipment	6,163		18,603
Leasing revenue	39,590		117,032
Total lease income	$	72,422	$	215,148

Lease financing equipment depreciation on equipment leased to others was $19.4 million and $57.8 million for the three and nine months ended September 30, 2019, respectively. The net book value of equipment leased to others and related initial direct costs under operating leases was $285.4 million at September 30, 2019.

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



(In thousands)
Remainder of 2019	$	51,851
2020	333,516
2021	459,359
2022	554,951
2023	563,752
Thereafter	612,063
Equipment under leases not yet commenced	47,948
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases	2,623,440
Third-party residual value guarantees	58,657
Total carrying amount of direct financing and sales-type leases	$	2,682,097

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



(In thousands)
Remainder of 2019	$	20,087
2020	71,120
2021	48,885
2022	25,915
2023	9,777
Thereafter	4,717
Total undiscounted future minimum lease payments	$	180,501

Loan Sales The following table summarizes the net gains on sales of loans and leases. TCF retains servicing on a majority of loans sold. See Note 11. Loan Servicing Rights for further information.



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2019			2018			2019			2018
Sale proceeds, net	$	472,800		$	410,389		$	1,066,576		$	940,134
Recorded investment in loans and leases sold, including accrued interest	458,697			393,078			1,033,961			911,218
Interest-only strips at initial value and other	(20,087		)	(8,809		)	(19,241		)	(4,016		)
Net (losses) gains on sales of loans and leases	$	(5,984	)	$	8,502		$	13,374		$	24,900

Interest-only strips related to loan sales were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Interest-only strips	$	14,078	$	16,835

TCF recorded $22 thousand and $43 thousand of impairment charges on interest-only strips during the three and nine months ended September 30, 2019, respectively, and $45 thousand and $0.7 million during the same periods in 2018.

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Note 8. Allowance for Loan and Lease Losses and Credit Quality

Allowance for Loan and Lease Losses The rollforwards of the allowance for loan and lease losses were as follows:



(In thousands)	Consumer Loan Portfolio			Commercial Loan and Lease Portfolio			Total Loans and Leases
At or For the Three Months Ended September 30, 2019
Balance, beginning of period	$	70,711		$	75,792		$	146,503
Charge-offs	(14,098		)	(21,449		)	(35,547		)
Recoveries	5,330			1,639			6,969
Net (charge-offs) recoveries	(8,768		)	(19,810		)	(28,578		)
Provision for credit losses	4,693			22,495			27,188
Other⁽¹⁾	(23,849		)	(46		)	(23,895		)
Balance, end of period	$	42,787		$	78,431		$	121,218
At or For the Three Months Ended September 30, 2018
Balance, beginning of period	$	91,241		$	74,378		$	165,619
Charge-offs	(15,942		)	(3,506		)	(19,448		)
Recoveries	11,711			947			12,658
Net (charge-offs) recoveries	(4,231		)	(2,559		)	(6,790		)
Provision for credit losses	(847		)	3,117			2,270
Other⁽¹⁾	(299		)	(179		)	(478		)
Balance, end of period	$	85,864		$	74,757		$	160,621

(In thousands)	Consumer Loan Portfolio			Commercial Loan and Lease Portfolio			Total Loans and Leases
At or For the Nine Months Ended September 30, 2019
Balance, beginning of period	$	80,017		$	77,429		$	157,446
Charge-offs	(43,922		)	(37,122		)	(81,044		)
Recoveries	15,840			3,890			19,730
Net (charge-offs) recoveries	(28,082		)	(33,232		)	(61,314		)
Provision for credit losses	16,644			34,235			50,879
Other⁽¹⁾	(25,792		)	(1		)	(25,793		)
Balance, end of period	$	42,787		$	78,431		$	121,218
At or For the Nine Months Ended September 30, 2018
Balance, beginning of period	$	98,085		$	72,956		$	171,041
Charge-offs	(48,120		)	(9,381		)	(57,501		)
Recoveries	21,299			2,491			23,790
Net (charge-offs) recoveries	(26,821		)	(6,890		)	(33,711		)
Provision for credit losses	18,872			9,002			27,874
Other⁽¹⁾	(4,272		)	(311		)	(4,583		)
Balance, end of period	$	85,864		$	74,757		$	160,621

	~~Adoption Date~~	~~Effect on the financial statements~~
~~ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities ("ASU 2017-08")~~ (1)	ASU 2017-08 reduces the amortization period for certain callable debt securities that are held at a premium to the earliest call date. Debt securities held at a discount will continue to be amortized as a yield adjustment over the life of the instrument.	~~April 1, 2017~~	~~The early adoption in the second quarter of 2017 did not have a material impact on the Consolidated Financial Statements.~~
~~ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02")~~	ASU 2018-02 required deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rate with the effect included in income from continuing operations in the reporting period that includes the enactment date.	~~Fourth quarter of 2017~~	The early adoption in the fourth quarter of 2017 resulted in a $4.5 million reclassification from accumulated other comprehensive income to retained earnings related to the income tax effects of the Tax Cuts and Jobs Act.
~~ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606)~~ ~~ASU No. 2016-08 - Principal versus Agent Considerations~~ ~~ASU No. 2016-10 - Identifying Performance Obligations and Licensing~~ ~~ASU No. 2016-12,~~ ~~Narrow-scope Improvements and Practical Expedients ("Updates to Topic 606")~~	~~The core principle of the Updates to Topic 606 is that an entity recognizes revenue to depict~~Includes the transfer of ~~promised goods or services~~the allowance for loan and lease losses to ~~customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is intended to clarify~~loans and converge the revenue recognition principles under GAAP and International Financial Reporting Standards and to streamline revenue recognition requirements in addition to expanding required revenue recognition disclosures.	~~January 1, 2018 under the modified retrospective method~~	~~A large majority~~leases held-for-sale (inclusive of the ~~Corporation's revenue is derived from net interest income, which is excluded from the scope~~transfer of the guidance. Following detailed review of the Corporation's revenue streams not derived from net interest income on financial assets and liabilities, management identified the recognition of gains from other real estate sales financed by the Corporation to be in the scope of this amended guidance. Effective January 1, 2018, revenueLegacy TCF auto loan portfolio for new seller financed other real estate owned sales will be determined according to the Updates to Topic 606. If all qualifications are met, gains associated with the sales will be recognized into income at the time of closing and therefore not deferred. The cumulative effect of the Updates to Topic 606 increased retained earnings by $1.2 million upon adoption. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Additional required disclosures have been included in Note 13, Revenue from Contracts with Customers. The adoption is not expected to have a material impact on the Corporation's net income on an ongoing basis. Refer to Note 5, Other Real Estate Owned and Repossessed Assets, for further detail.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~



~~Standard~~	~~Description~~	~~Adoption Date~~	~~Effect on the financial statements~~
~~ASU No. 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01")~~	ASU 2016-01 amended current guidance by: (i) requiring equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income, (ii) allowing an entity to measure equity investments that do not have readily determinable fair values at either fair value or cost minus impairment, changes in measurement is recognized in net income, (iii) simplifying impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iv) eliminating the requirement to disclose the methods and assumptions used to estimate the fair value of financial instruments measured at amortized cost; (v) requiring the use of exit price notion when measuring the fair value of financial instruments; (vi) requiring recognition of changes in the fair value related to instrument-specific credit risk in other comprehensive income if financial liabilities are measured at fair value, (vii) requiring separate presentation in financial statements by measurement category, and (viii) clarifying that an entity should evaluate the need for valuation allowance on deferred tax assets related to available-for-sale securities in combination with the entity’s other deferred tax assets.	~~January 1, 2018 using a modified retrospective approach with the exception of disclosure requirements which are adopted on a prospective basis~~	The Corporation identified available-for-sale investment securities qualifying as equity investments in the securities portfolio at January 1, 2018. The adoption resulted in recognizing the unrealized fair value related to the identified equity investments as a cumulative effect to retained earnings of $0.3 million. In addition, the Corporation has updated disclosures related to the fair value of financial instruments to the use of the exit price notion. ~~Refer to Note 2, Fair Value Measurements and Note 3, Investment Securities, for further detail.~~
~~ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts as Cash Payments ("ASU 2016-15")~~	2016-15 was issued to reduce diversity in practice and prevent financial statement restatements. Cash flow issues include: debt prepayment or debt extinguishment costs, settlement of insurance claims, proceeds from the settlement of corporate-owned and bank-owned life insurance policies, distribution received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle.	~~January 1, 2018 using retrospective application~~	The adoption did not have a material effect on the presentation of our Consolidated Statements of Cash Flows, as current policies are either already in-line with the clarifications in the updated guidance, or the related cash flows are not material.
~~ASU No. 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost ("ASU 2017-07")~~	ASU 2017-07 improves the income statement presentation of net periodic benefit cost for an entity's pension and postretirement plans. The standard requires employers to disaggregate current service costs from other components of net benefit cost and present it with other compensation cost. Additionally net benefit cost becomes eligible for capitalization.	~~January 1, 2018 using the retrospective transition method~~	The adoption resulted in a reclassification of $31 thousand and $0.7 million of net periodic income from salaries, wages and employee benefits expense to other expenses on the Consolidated Statements of Income during the three and nine months ended September 30, ~~2017, respectively.~~
~~ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvement to Account for Hedging Activities ("ASU 2017-12")~~	ASU 2017-12 eliminates the separate measurement of hedge ineffectiveness as well as the benchmark interest rate concept when applying hedge risk to variable-rate instruments. It also allows a company to elect to perform subsequent effectiveness assessments qualitatively if the initial quantitative hedge effectiveness assessment is found to be highly effective.	~~January 1, 2018~~	The early adoption resulted in a cumulative adjustment from opening retained earnings to accumulated other comprehensive income of $3 thousand, which represented all previously recognized hedge ineffectiveness.
ASU No. 2018-15 - Intangible-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 ("ASU 2018-15")	ASU 2018-15 clarifies the accounting treatment for implementation costs for hosting arrangements that are service contracts. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software in accordance with subtopic 350-40. Under this guidance costs for implementation activities during the development stage shall be capitalized. The said capitalized-costs shall be expensed over the term of the hosting arrangement.	~~Third quarter of 2018 applied retrospectively~~	~~The early adoption in the third quarter did not have a material effect on the Consolidated Financial Statements.~~2019).

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~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Effective during the nine months ended 2018, the Corporation also adopted the following standards, none~~The allowance for loan and lease losses and loans and leases outstanding by type of ~~which had a material impact to the Corporation's financial statements or financial statement disclosures:~~allowance methodology were as follows:



~~Standard~~		~~Effective Date~~
~~2016-04~~	~~Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products~~	~~January 1, 2018~~
~~2016-16~~	~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~	~~January 1, 2018~~
~~2016-18~~	~~Statement of Cash Flows (Topic 230): Restricted Cash~~	~~January 1, 2018~~
~~2017-01~~	~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~	~~January 1, 2018~~
~~2017-05~~	~~Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets~~	~~January 1, 2018~~
~~2017-09~~	~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~	~~January 1, 2018~~



	At September 30, 2019
(In thousands)	Consumer Loan Portfolio		Commercial Loan and Lease Portfolio		Total Loans and Leases
Allowance for loan and lease losses
Collectively evaluated for impairment	$	26,024	$	70,219	$	96,243
Individually evaluated for impairment	16,763		8,212		24,975
Total	$	42,787	$	78,431	$	121,218
Loans and leases outstanding
Collectively evaluated for impairment	$	11,016,429	$	21,956,151	$	32,972,580
Individually evaluated for impairment	132,900		111,559		244,459
PCI loans	79,737		213,976		293,713
Total	$	11,229,066	$	22,281,686	$	33,510,752



	At December 31, 2018
(In thousands)	Consumer Loan Portfolio		Commercial Loan and Lease Portfolio		Total Loans and Leases
Allowance for loan and lease losses
Collectively evaluated for impairment	$	57,113	$	68,140	$	125,253
Individually evaluated for impairment	22,904		9,289		32,193
Total	$	80,017	$	77,429	$	157,446
Loans and leases outstanding
Collectively evaluated for impairment	$	7,285,753	$	11,587,373	$	18,873,126
Individually evaluated for impairment	128,159		67,919		196,078
PCI loans	—		3,816		3,816
Total	$	7,413,912	$	11,659,108	$	19,073,020

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~~Note 2: Fair Value Measurements~~

~~Fair value, as defined by GAAP,~~

Accruing and Nonaccrual Loans and Leases TCF's key credit quality indicator is the ~~price that would be received to sell an asset~~receivable's payment performance status, defined as accruing or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not ~~adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for market activities that~~accruing. Nonaccrual loans and leases are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Investment securities — carried at fair value, loans held-for-sale, loan servicing rights and derivatives are recorded at fair value on a recurring basis. Additionally, the Corporation may be required to record other assets, such as impaired loans, goodwill, other intangible assets, other real estate and repossessed assets, at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.

The Corporation determines the fair value of its financial instruments based on a three-level hierarchy established by GAAP. The classification and disclosure of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect management’s estimates about market data. The three levels of inputs that may be used to measure fair value within the GAAP hierarchy are as follows:


~~Level 1~~	~~Valuation is based upon quoted prices for identical instruments traded in active markets.~~

~~Level 2~~

Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques forthose which all significant assumptions are observable in the market. Level 2 valuations for the Corporation include government and government-sponsored agency securities, including securities issued by the Federal Home Loan Bank ("FHLB"), Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Federal Farm Credit Bank, Student Loan Marketing Corporation and the Small Business Administration, securities issued by certain state and political subdivisions, residential mortgage-backed securities, collateralized mortgage obligations, corporate bonds, preferred stock and available-for-sale trust preferred securities. Valuations are obtained from a third-party pricing service for these investment securities. Additionally included in Level 2 valuations are loans held for sale and derivative assets and liabilities.

~~Level 3~~

Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, yield curves and similar techniques. The determination of fair value requires management judgment or estimation and generally is corroborated by external data, which includes third-party pricing services. Level 3 valuations for the Corporation include impaired loans, goodwill, core deposit intangible assets, non-compete intangible assets, LSRs and other real estate and repossessed assets.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Corporation’s financial assets and financial liabilities carried at fair value and all financial instruments disclosed at fair value. Transfers of assets or liabilities between levels of the fair value hierarchy are recognized at the beginning of the reporting period, when applicable.

In general, fair value is based upon quoted market prices, where available. If quoted market prices are not available, fair value is based upon third-party pricing services when available. Fair value may also be based on internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be required to record financial instruments at fair value. Any such valuation adjustments are applied consistently over time. The Corporation's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

~~While~~ management believes ~~the Corporation’s valuation methodologies~~have a higher risk of loss. Delinquent balances are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the fair value amounts may change significantly after the date of the statement of financial position from the amounts reported in the Consolidated Financial Statements and related notes.

~~Assets and Liabilities Recorded at Fair Value on a Recurring Basis~~

~~Investment securities:~~ Investment securities are recorded at fair value on a recurring basis with the exception of those classified as held-to-maturity. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are generally measured using independent pricing models or other model-based valuation techniques that include market inputs, such as benchmark yields, reported trades, broker dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and industry and economic events.

~~Loans held-for-sale:~~ The Corporation has elected the fair value option for all loans held-for-sale. Accordingly, loans held-for-sale are recorded at fair value on a recurring basis. The fair values of loans held-for-sale are based on the market price for similar loans sold in the secondary market, and therefore, are classified as Level 2 valuations.

~~Loan servicing rights:~~ The Corporation has elected to account for all LSRs under the fair value measurement method. A third party valuation model is used to determine the fair value at the end of each reporting period utilizing a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and a discount rate determined ~~by management. Because of the nature of the valuation inputs, the Corporation classifies loan servicing rights as Level 3. Refer to~~ ~~Note 7, "Loan Servicing Rights," for the assumptions included in the valuation of loan servicing rights.~~

~~Derivatives:~~ The Corporation enters into interest rate lock commitments with prospective borrowers to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors, which are carried at fair value on a recurring basis. The fair value of these commitments is based on the fair value of related mortgage loans determined using observable market data. Interest rate lock commitments are adjusted for expectations of exercise and funding. This adjustment is not considered to be a material input. The Corporation classifies interest rate lock commitments and forward contracts related to mortgage loans to be delivered for sale as recurring Level 2.

Derivative instruments held or issued for risk management or customer-initiated activities are traded in over-the counter markets where quoted market prices are not readily available. Fair value for over-the-counter derivative instruments is measured on a recurring basis using third party models that use primarily market observable inputs, such as yield curves and option volatilities. The fair value for these derivatives may include a credit valuation adjustment that is determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative after considering collateral and other master netting arrangements. These adjustments, which are considered Level 3 inputs, are based on estimates of current credit spreads to evaluate the likelihood of default. The Corporation assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions at both September 30, 2018 and December 31, 2017 and it was determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Corporation classifies its risk management interest rate swaps designated as cash flow hedges and customer-initiated derivatives valuations in Level 2 of the fair value hierarchy.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Foreign exchange forward and option contracts are entered into primarily to accommodate the needs of the customer. These derivatives are not designated as hedging. Fair value of foreign exchange forward and option contracts are measured on a recurring basis using third party models that use primarily market observable inputs, such as yield curves and option volatilities. The Corporation classifies its foreign exchange forward and option contracts in Level 2 of the fair value hierarchy.

Written and purchased option derivatives consist of instruments to facilitate an equity-linked time deposit product (the "Power Equity CD"). The Power Equity CD is a time deposit that provides the purchaser a guaranteed return of principal at maturity plus a potential equity return, while the Corporation receives a known stream of funds based on equity returns. The written and purchased options are mirror derivative instruments which are carried at fair value on the Consolidated Statements of Financial Position. Fair value measurements for the Power Equity CD are determined using quoted prices of underlying stocks, along with other terms and features of the derivative instrument. As a result, the Power Equity CD derivatives are classified as Level 2 valuations.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Disclosure of Recurring Basis Fair Value Measurements~~

~~For assets and liabilities measured at fair value on a recurring basis, quantitative disclosures about the fair value measurements for each major category of assets and liabilities follow:~~

(Dollars in thousands)
Quoted Prices In Active Markets for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
September 30, 2018
Investment securities – carried at fair value:
Government and government-sponsored agencies $ —
$ 254,453
$ —
$ 254,453
State and political subdivisions —
491,909
—
491,909
Residential mortgage-backed securities —
177,021
—
177,021
Collateralized mortgage obligations —
1,477,818
—
1,477,818
Corporate bonds —
287,405
—
287,405
Trust preferred securities —
48,274
—
48,274
Total investment securities – carried at fair value —
2,736,880
—
2,736,880
Loans held-for-sale —
93,736
—
93,736
Loan servicing rights —
—
72,707
72,707
Derivative assets:
Customer-initiated derivatives —
21,390
—
21,390
Foreign exchange forwards —
3
—
3
Forward contracts related to mortgage loans to be delivered for sale —
760
—
760
Interest rate lock commitments —
1,081
—
1,081
Power Equity CD —
1,260
—
1,260
Risk management derivatives —
21,067
—
21,067
Total derivatives —
45,561
—
45,561
Total assets at fair value $ —
$ 2,876,177
$ 72,707
$ 2,948,884
Derivative liabilities:
Customer-initiated derivatives $ —
$ 21,703
$ —
$ 21,703
Foreign exchange forwards —
3
—
3
Power Equity CD —
1,260
—
1,260
Total derivatives —
22,966
—
22,966
Total liabilities at fair value $ —
$ 22,966
$ —
$ 22,966
December 31, 2017
Investment securities – available-for-sale:
Government and government-sponsored agencies $ —
$ 202,916
$ —
$ 202,916
State and political subdivisions —
345,970
—
345,970
Residential mortgage-backed securities —
150,131
—
150,131
Collateralized mortgage obligations —
1,033,845
—
1,033,845
Corporate bonds —
192,794
—
192,794
Trust preferred securities —
36,066
—
36,066
Preferred stock —
1,824
—
1,824
Total investment securities – available-for-sale —
1,963,546
—
1,963,546
Loans held-for-sale —
52,133
—
52,133
Loan servicing rights —
—
63,841
63,841
Derivative assets:
Customer-initiated derivatives —
9,376
—
9,376
Interest rate lock commitments —
1,222
—
1,222
Power Equity CD —
2,184
—
2,184
Risk management derivatives —
5,899
—
5,899
Total derivatives —
18,681
—
18,681
Total assets at fair value $ —
$ 2,034,360
$ 63,841
$ 2,098,201
Derivative liabilities:
Customer-initiated derivatives $ —
$ 10,139
$ —
$ 10,139
Forward contracts related to mortgage loans to be delivered for sale —
34
—
34
Power Equity CD —
2,184
—
2,184
Total derivatives —
12,357
—
12,357
Total liabilities at fair value $ —
$ 12,357
$ —
$ 12,357

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~There were no transfers between levels within the fair value hierarchy during the nine months ended September 30, 2018 and 2017.~~

~~The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis.~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(Dollars in thousands) Loan servicing rights
Balance, beginning of period $ 70,364
$ 64,522
$ 63,841
$ 48,085
Transfer in based on new accounting policy election⁽¹⁾
—
—
—
15,891
Gains (losses):
Recorded in earnings (realized):
Recorded in "Net gain on sale of loans and other mortgage banking revenue" 257
(4,651 ) 2,529
(8,242 )
New originations 2,086
2,324
6,337
6,461
Balance, end of period $ 72,707

$ 62,195

$ 72,707

$ 62,195


⁽¹⁾	~~Refer to Note 1, Basis of Presentation and Significant Accounting Policies, for further details.~~

The Corporation has elected the fair value option for loans held-for-sale. These loans are intended for sale and the Corporation believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan or lease. Loans and leases that are over 90 days delinquent are a leading indicator for future charge-off trends and are generally placed on nonaccrual status. TCF's accruing and nonaccrual loans and leases were as follows:



(In thousands)	Current		30-89 Days Delinquent and Accruing		90 Days or More Delinquent and Accruing		Total Accruing		Nonaccrual		Total
At September 30, 2019
Commercial loan and lease portfolio:
Commercial and industrial	$	10,615,519	$	49,595	$	2,241	$	10,667,355	$	55,039	$	10,722,394
Commercial real estate	8,677,350		39,023		8,054		8,724,427		26,518		8,750,945
Lease financing	2,551,326		29,123		2,421		2,582,870		11,503		2,594,373
Total commercial loan and lease portfolio	21,844,195		117,741		12,716		21,974,652		93,060		22,067,712
Consumer loan portfolio:
Residential mortgage	5,919,947		14,533		886		5,935,366		48,816		5,984,182
Consumer installment	1,557,320		3,667		6		1,560,993		636		1,561,629
Home equity	3,550,652		13,569		—		3,564,221		39,296		3,603,517
Total consumer loan portfolio	11,027,919		31,769		892		11,060,580		88,748		11,149,328
PCI loans⁽¹⁾	261,082		16,578		16,052		293,712		—		293,712
Total	$	33,133,196	$	166,088	$	29,660	$	33,328,944	$	181,808	$	33,510,752
At December 31, 2018
Commercial loan and lease portfolio:
Commercial and industrial	$	6,176,341	$	13,653	$	760	$	6,190,754	$	26,061	$	6,216,815
Commercial real estate	2,903,795		—		—		2,903,795		4,518		2,908,313
Lease financing	2,498,811		21,477		1,882		2,522,170		7,993		2,530,163
Total commercial loan and lease portfolio	11,578,947		35,130		2,642		11,616,719		38,572		11,655,291
Consumer loan portfolio:
Residential mortgage	2,291,435		10,014		1,275		2,302,724		33,111		2,335,835
Consumer installment	1,951,302		40,340		3,349		1,994,991		8,581		2,003,572
Home equity	3,042,968		5,883		—		3,048,851		25,654		3,074,505
Total consumer loan portfolio	7,285,705		56,237		4,624		7,346,566		67,346		7,413,912
PCI loans⁽¹⁾	3,639		—		178		3,817		—		3,817
Total	$	18,868,291	$	91,367	$	7,444	$	18,967,102	$	105,918	$	19,073,020


(1)	PCI loans that are not performing in accordance with contractual terms are not reported as nonaccrual because these loans were recorded at their net realizable value based on the principal and interest TCF expects to collect on these loans.

In addition to the receivables payment performance status, credit quality is also analyzed using risk categories, which vary based on the size and type of credit risk exposure and additionally measure liquidity, debt capacity, coverage and payment behavior as shown in the borrower's financial statements. The risk categories also measure the quality of the borrower's management and the repayment support offered by any guarantors. Loan and lease credit classifications are derived from standard regulatory rating definitions, which include: pass, special mention, substandard, doubtful and loss. Substandard and doubtful loans and leases have well-defined weaknesses, but may never result in a loss.

Table of Contents

The following schedule presents the recorded investment of loans and leases by credit risk categories.



(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
At September 30, 2019
Commercial loan and lease portfolio:
Commercial and industrial	$	10,307,229	$	309,440	$	193,865	$	—	$	10,810,534
Commercial real estate	8,645,910		150,132		80,737		—		8,876,779
Lease financing	2,540,637		27,007		26,729		—		2,594,373
Total commercial loan and lease portfolio	21,493,776		486,579		301,331		—		22,281,686
Consumer loan portfolio:
Residential mortgage	6,001,380		1,543		54,481		—		6,057,404
Consumer installment	1,561,506		—		746		—		1,562,252
Home equity	3,565,763		1,284		42,363		—		3,609,410
Total consumer loan portfolio	11,128,649		2,827		97,590		—		11,229,066
Total loans and leases	$	32,622,425	$	489,406	$	398,921	$	—	$	33,510,752
At December 31, 2018
Commercial loan and lease portfolio:
Commercial and industrial	$	5,955,713	$	158,296	$	106,623	$	—	$	6,220,632
Commercial real estate	2,869,711		12,864		25,738		—		2,908,313
Lease financing	2,480,964		25,195		24,004		—		2,530,163
Total commercial loan and lease portfolio	11,306,388		196,355		156,365		—		11,659,108
Consumer loan portfolio:
Residential mortgage	2,294,740		3,606		37,489		—		2,335,835
Consumer installment	1,981,844		1,302		20,426		—		2,003,572
Home equity	3,043,296		3,747		27,462		—		3,074,505
Total consumer loan portfolio	7,319,880		8,655		85,377		—		7,413,912
Total loans and leases	$	18,626,268	$	205,010	$	241,742	$	—	$	19,073,020

Troubled Debt Restructurings In certain circumstances, TCF may consider modifying the terms of a loan for economic or legal reasons related to the customer's financial difficulties. If TCF grants a concession, the modified loan is classified as a troubled debt restructuring ("TDR"). TDRs typically involve a deferral of the principal balance of the loan, a reduction of the stated interest rate of the loan or, in certain limited circumstances, a reduction of the principal balance of the loan or the loan's accrued interest. All loans classified as TDR loans are considered to be impaired.

The following table presents the recorded investment of loan modifications first classified as TDRs during the periods presented:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
(In thousands)	Pre-modification Investment		Post-modification Investment		Pre-modification Investment		Post-modification Investment		Pre-modification Investment		Post-modification Investment		Pre-modification Investment		Post-modification Investment
Commercial loan and lease portfolio:
Commercial and industrial	$	—	$	—	$	11	$	11	$	—	$	—	$	11	$	11
Commercial real estate	—		—		—		—		31,518		31,518		5,228		5,228
Total commercial loan and lease portfolio	—		—		11		11		31,518		31,518		5,239		5,239
Consumer loan portfolio:
Residential mortgage	1,724		1,723		2,132		2,119		4,023		4,016		4,385		4,315
Home equity	1,115		1,115		983		983		3,589		3,577		1,792		1,790
Total consumer loan portfolio	2,839		2,838		3,115		3,102		7,612		7,593		6,177		6,105
Total	$	2,839	$	2,838	$	3,126	$	3,113	$	39,130	$	39,111	$	11,416	$	11,344

Table of Contents

The following table presents TDR loans:



	At September 30, 2019						At December 31, 2018
(In thousands)	Accruing TDR Loans		Nonaccrual TDR Loans		Total TDR Loans		Accruing TDR Loans		Nonaccrual TDR Loans		Total TDR Loans
Commercial loan and lease portfolio	$	10,068	$	1,953	$	12,021	$	12,665	$	6,153	$	18,818
Consumer loan portfolio	75,836		19,284		95,120		85,794		22,554		108,348
Total	$	85,904	$	21,237	$	107,141	$	98,459	$	28,707	$	127,166

Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $0.5 million and $0.6 million at September 30, 2019 and December 31, 2018, respectively.

Loan modifications to troubled borrowers are no longer disclosed as TDR loans in ~~accordance~~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.

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. TCF considers a loan to have defaulted when under the modified terms it becomes 90 or more days delinquent, has been transferred to nonaccrual status, has been charged down or has been transferred to other real estate owned or repossessed and returned assets.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2019		2018		2019		2018
Defaulted TDR loan balances modified during the applicable period
Commercial loan and lease portfolio:
Commercial and industrial	$	—	$	87	$	297	$	4,784
Total commercial loan and lease portfolio	—		87		297		4,784
Consumer loan portfolio:
Residential mortgage	212		778		964		2,556
Consumer installment	452		217		1,555		950
Home equity	82		176		328		435
Total consumer loan portfolio	746		1,171		2,847		3,941
Defaulted TDR loan balances	$	746	$	1,258	$	3,144	$	8,725

Impaired Loans and Leases Effective January 1, 2019, in conjunction with the ~~Corporation's policy~~adoption of ASU No. 2016-02, Leases (Topic 842) and related ASUs, TCF considers impaired loans and leases to include nonaccrual commercial loans and leases, as well as all commercial and consumer TDR loans. Previously, TCF did not include impaired leases within the following tables. For purposes of this disclosure, PCI loans have been excluded. In the following table, the balance of impaired loans and leases represents the amount recorded within loans and leases on ~~loans held for investment in "Interest and fees on loans" in~~ the Consolidated Statements of ~~Income. There were no~~Financial Condition, whereas the unpaid contractual balance represents the balances legally owed by the borrowers.

Table of Contents

Information on impaired loans ~~held-for-sale on nonaccrual status or 90 days past due~~ and ~~on accrual status as of~~leases at September 30, ~~2018~~2019 and information on impaired loans at December 31, ~~2017.~~

~~The aggregate fair value, contractual balance (including accrued interest), and gain or loss for loans held-for-sale carried at fair value option~~2018 was as follows:

(Dollars in thousands) September 30, 2018 December 31, 2017
Aggregate fair value $ 93,736
$ 52,133
Contractual balance 91,839
50,597
Unrealized gain (loss) 1,897
1,536



	At September 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:
Commercial loan and lease portfolio:
Commercial and industrial	$	27,748	$	24,775	$	5,151	$	35,444	$	32,326	$	6,354
Commercial real estate	4,257		3,922		330		4,905		4,474		1,108
Lease financing	11,503		11,503		2,731		—		—		—
Total commercial loan and lease portfolio	43,508		40,200		8,212		40,349		36,800		7,462
Consumer loan portfolio:
Residential mortgage	81,658		78,247		13,630		63,004		60,172		17,216
Consumer installment	—		—		—		919		647		81
Home equity	30,584		29,228		2,916		27,386		25,836		5,288
Total consumer loan portfolio	112,242		107,475		16,546		91,309		86,655		22,585
Total impaired loans and leases with an allowance recorded	155,750		147,675		24,758		131,658		123,455		30,047
Impaired loans and leases without an allowance recorded:
Commercial loan and lease portfolio:
Commercial and industrial	56,284		36,409		—		2,239		2,237		—
Commercial real estate	63,069		34,950		—		4,275		4,208		—
Total commercial loan and lease portfolio	119,353		71,359		—		6,514		6,445		—
Consumer loan portfolio:
Residential mortgage	27,420		19,370		—		11,636		9,494		—
Consumer installment	1,878		635		—		15,400		10,770		—
Home equity	16,771		5,420		—		10,620		1,429		—
Total consumer loan portfolio	46,069		25,425		—		37,656		21,693		—
Total impaired loans and leases without an allowance recorded	165,422		96,784		—		44,170		28,138		—
Total impaired loans and leases	$	321,172	$	244,459	$	24,758	$	175,828	$	151,593	$	30,047

Table of Contents

The ~~total amount~~average balance of ~~gains (losses) from~~impaired loans ~~held-for-sale included in~~and leases and interest income recognized on impaired loans and leases and the ~~Consolidated Statements~~average loan balance of ~~Income~~impaired loans and interest income recognized on impaired loans were as follows:



	Three Months Ended September 30,								Nine Months Ended September 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
Commercial loan and lease portfolio:
Commercial and industrial	$	22,845	$	3	$	22,917	$	49	$	28,551	$	32	$	15,213	$	251
Commercial real estate	4,175		51		5,192		—		4,198		120		5,929		—
Lease financing	12,195		55		—		—		5,751		117		8,552		—
Total commercial loan and lease portfolio	39,215		109		28,109		49		38,500		269		29,694		251
Consumer loan portfolio:
Residential mortgage	77,852		770		60,737		380		69,209		1,864		69,268		1,221
Consumer installment	289		—		454		—		324		—		713		—
Home equity	30,225		94		26,462		301		27,532		681		29,583		1,326
Total consumer loan portfolio	108,366		864		87,653		681		97,065		2,545		99,564		2,547
Total impaired loans and leases with an allowance recorded	$	147,581	$	973	$	115,762	$	730	$	135,565	$	2,814	$	129,258	$	2,798
Impaired loans and leases without an allowance recorded
Commercial loan and lease portfolio:
Commercial and industrial	$	20,448	$	37	$	403	$	31	$	19,323	$	129	$	1,510	$	136
Commercial real estate	39,222		437		4,315		58		19,579		1,087		4,385		174
Lease financing	—		—		—		—		—		—		—		—
Total commercial loan and lease portfolio	59,670		474		4,718		89		38,902		1,216		5,895		310
Consumer loan portfolio:
Residential mortgage	12,609		121		9,982		160		14,431		450		10,013		502
Consumer installment	6,476		83		8,757		77		5,703		256		8,630		211
Home equity	3,551		23		1,683		55		3,425		110		1,648		177
Total consumer loan portfolio	22,636		227		20,422		292		23,559		816		20,291		890
Total impaired loans and leases without an allowance recorded	82,306		701		25,140		381		62,461		2,032		26,186		1,200
Total impaired loans and leases	$	229,887	$	1,674	$	140,902	$	1,111	$	198,026	$	4,846	$	155,444	$	3,998

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 2018 2017
Interest income⁽¹⁾
$ 849
$ 810
$ 1,670
$ 1,824
Change in fair value⁽²⁾
577
614
361
2,002
Net gain on sales of loans⁽²⁾
4,241
6,512
9,772
26,537
Total included in earnings $ 5,667
$ 7,936
$ 11,803
$ 30,363


⁽¹⁾	~~Included in "Interest and fees on loans" in the Consolidated Statements of Income.~~


⁽²⁾	~~Included in "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.~~

Other Real Estate Owned and Repossessed and Returned Assets ~~and Liabilities Recorded at Fair Value on a Nonrecurring Basis~~

~~Investment securities:~~ Investment securities classified as held-to-maturity are recorded at fair value if the value is below amortized cost and the Corporation has determined that such unrealized loss is an other-than-temporary impairment. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are generally measured using independent pricing models or other model-based valuation techniques that include market inputs, such as benchmark yields,

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~reported trades, broker dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and industry and economic events.~~

~~Impaired Loans:~~ The Corporation does not record loans held for investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allocation of the allowance (valuation allowance) may be established or a portion of the loan is charged off. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including the loan’s observable market price, the fair value of the collateral or the present value of the expected future cash flows discounted at the loan’s effective interest rate. Those impaired loans not requiring a valuation allowance represent loans for which the fair value of the expected repayments or collateral exceed the remaining carrying amount of such loans. Impaired loans where a valuation allowance is established or a portion of the loan is charged off based on the fair value of collateral are subject to nonrecurring fair value measurement and require classification in the fair value hierarchy. The Corporation records impaired loans as Level 3 valuations as there is generally no observable market price or management determines the fair value of the collateral is further impaired below the independent appraised value. When management determines the fair value of the collateral is further impaired below appraised value, discounts ranging between 20% and 30% of the appraised value are used depending on the nature of the collateral and the age of the most recent appraisal.

~~Goodwill:~~ Goodwill is subject to impairment testing on an annual basis. The assessment of goodwill for impairment requires a significant degree of judgment. In the event the assessment indicates that it is more-likely-than-not that the fair value is less than the carrying value, the asset is considered impaired and recorded at fair value. Goodwill that is impaired and subject to nonrecurring fair value measurements is a Level 3 valuation. At ~~September 30, 2018~~ ~~and~~ ~~December 31, 2017~~, no ~~goodwill was impaired.~~

~~Other intangible assets:~~ Other intangible assets consist of core deposit intangible assets and non-compete intangible assets. These items are recorded at fair value when initially recorded. Subsequently, core deposit intangible assets and non-compete intangible assets are amortized primarily on an accelerated basis over periods ranging from ~~ten~~ to ~~fifteen years~~ for core deposit intangible assets and one year for non-compete intangible assets and are subject to impairment testing whenever events or changes in circumstances indicate that the carrying amount exceeds the fair value of the asset. If core deposit intangible asset or non-compete intangible asset impairment is identified, the Corporation classifies impaired core deposit intangible assets and impaired non-compete intangible assets subject to nonrecurring fair value measurements as Level 3 valuations. At ~~September 30, 2018~~ ~~and~~ ~~December 31, 2017, there was~~ no ~~impairment identified for core deposit intangible assets or non-compete intangible assets.~~

Other real estate owned and repossessed and returned assets~~: The carrying amounts for~~ were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Other real estate owned	$	27,638	$	17,403
Repossessed and returned assets	14,598		14,574
Consumer loans in process of foreclosure	15,509		15,540

On August 1, 2019, TCF acquired $14.6 million of other real estate owned and $0.3 million of repossessed and returned assets ~~are reported~~ in connection with the ~~Consolidated Statements of Financial Position under "Interest receivable and other assets."~~Merger. Other real estate owned and repossessed and returned assets ~~include real estate~~were written down $2.3 million and ~~other types of assets repossessed by~~$5.5 million during the ~~Corporation. Other real estate~~three and repossessed assets are recorded at the lower of cost or fair value upon the transfer of a loan to other real estate and repossessed assets and, subsequently, continue to be measured and carried at the lower of cost or fair value. Fair value is based upon independent market prices, appraised values of the property or management’s estimation of the value of the property. The Corporation records other real estate and repossessed assets as Level 3 valuations as management generally determines that the fair value of the property is impaired below the appraised value. When management determines the fair value of the property is further impaired below appraised value, discounts ranging between 20% and 30% of the appraised value are used depending on the nature of the property and the age of the most recent appraisal.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

nine months ended September 30, ~~2018~~

~~Disclosure of Nonrecurring Basis Fair Value Measurements~~

Certain assets may be required to be measured at fair value on a nonrecurring basis. The carrying value of these assets represent end of period values, which approximate the fair value measurements that occurred on the various measurement dates2019, respectively, and $0.7 million and $2.7 million during the ~~period. For~~same periods in 2018, included in other assets ~~measured at fair value on a nonrecurring basis, quantitative disclosures about fair value measurements for each major category of assets follows:~~

(Dollars in thousands)
Significant Unobservable
Inputs (Level 3)
September 30, 2018
Impaired loans $ 73,137
Other real estate and repossessed assets 1,843
Total $ 74,980
December 31, 2017
Impaired loans $ 70,619
Other real estate and repossessed assets 2,899
Total $ 73,518

~~There were no liabilities recorded at fair value on a nonrecurring basis at either September 30, 2018 or December 31, 2017.~~

The following table presents additional information about the significant unobservable inputs used in the fair value measurement of financial assets measured on a nonrecurring basis that were categorized within the Level 3 of the fair value hierarchy:

(Dollars in thousands) Fair Value at
September 30, 2018 Valuation Technique Significant Unobservable Inputs Range
Impaired loans $ 73,137
Appraisal of collateral Discount for type of collateral and age of appraisal 20%-30%
Other real estate and repossessed assets 1,843
Appraisal of property Discount for type of property and age of appraisal 20%-30%

~~Disclosures about Fair Value of Financial Instruments~~

GAAP requires disclosures about the estimated fair value of the Corporation's financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis. The Corporation utilized the fair value hierarchy in computing the fair values of its financial instruments. In cases where quoted market prices were not available, the Corporation employed the exit-price notion following the adoption of ASU 2016-01 on January 1, 2018 and used the present value method prior to the adoption of ASU 2016-01, using unobservable inputs requiring management's judgment to estimate the fair values of its financial instruments, which are considered Level 3 valuations. These Level 3 valuations are affected by the assumptions made and, accordingly, are not necessarily indicative of amounts that would be realized in a current market exchange. It is also the Corporation's general practice and intent to hold the majority of its financial instruments until maturity and, therefore, the Corporation does not expect to realize the estimated amounts disclosed.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~A summary of carrying amounts and estimated fair values of the Corporation’s financial instruments not recorded at fair value in their entirety on a recurring basis~~ on the Consolidated Statements of Financial ~~Position are disclosed in the table below.~~Condition.

Level in Fair Value Measurement
Hierarchy
September 30, 2018 December 31, 2017
(Dollars in thousands)
Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value
Financial assets:
Investment securities:
Held-to-maturity Level 2 $ 607,867
$ 597,747
$ 676,593
$ 662,516
Held-to-maturity Level 3 500
450
500
390
Net loans⁽¹⁾
Level 3 14,692,211
14,301,208
14,063,380
14,114,545
Financial liabilities:
Time deposits Level 2 $ 3,865,489
$ 3,827,695
$ 3,217,207
$ 3,225,847
Collateralized customer deposits Level 2 377,471
376,969
415,236
415,236
Short-term borrowings Level 2 1,670,000
1,669,662
2,000,000
1,999,137
Long-term borrowings Level 2 430,971
426,105
372,882
367,984


⁽¹⁾	~~Included $73.1 million and $70.6 million of impaired loans recorded at fair value on a nonrecurring basis at September 30, 2018 and December 31, 2017, respectively.~~

The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, nonmarketable equity securities, interest receivable, bank owned life insurance, deposits without defined maturities and interest payable.

Table of Contents

~~Chemical Financial Corporation~~

~~Notes~~

Note 9. Premises and Equipment, Net

Premises and equipment, net were as follows:



(In thousands)	At September 30, 2019			At December 31, 2018
Land	$	156,380		$	144,754
Office buildings	345,663			268,495
Leasehold improvements	57,274			51,868
Furniture, equipment and computer software	450,739			404,743
Premises and equipment leased under capital leases	3,180			3,180
Subtotal	1,013,236			873,040
Less: Accumulated depreciation and amortization	(459,042		)	(445,506		)
Premises and equipment, net	$	554,194		$	427,534

Depreciation and amortization expense related to ~~Consolidated Financial Statements (Unaudited)~~

premises and equipment was $14.9 million and $52.1 million for the three and nine months ended September 30, ~~2018~~2019, respectively, and $12.6 million and $36.0 million for the same periods in 2018.

Note ~~3: Investment Securities~~

~~The following is a summary of the amortized cost and fair value of investment securities carried at fair value and investment securities held-to-maturity at~~ ~~September 30, 2018~~ ~~and~~ ~~December 31, 2017~~:

Investment Securities Carried at Fair Value
(Dollars in thousands)
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
September 30, 2018
Debt securities
Government and government-sponsored agencies $ 258,643
$ 14
$ 4,204
$ 254,453
State and political subdivisions 506,277
187
14,555
491,909
Residential mortgage-backed securities 182,983
6
5,968
177,021
Collateralized mortgage obligations 1,517,172
—
39,354
1,477,818
Corporate bonds 293,828
485
6,908
287,405
Trust preferred securities 47,378
1,004
108
48,274
Total $ 2,806,281
$ 1,696
$ 71,097
$ 2,736,880
December 31, 2017
Debt securities
Government and government-sponsored agencies $ 203,099
$ 765
$ 948
$ 202,916
State and political subdivisions 350,088
310
4,428
345,970
Residential mortgage-backed securities 151,752
5
1,626
150,131
Collateralized mortgage obligations 1,042,240
89
8,484
1,033,845
Corporate bonds 193,230
1,156
1,592
192,794
Trust preferred securities 34,848
1,280
62
36,066
Total debt securities available-for-sale 1,975,257
3,605
17,140
1,961,722
Equity securities
Preferred stock 1,389
435
—
1,824
Total equity securities 1,389
435
—
1,824
Total $ 1,976,646
$ 4,040
$ 17,140
$ 1,963,546

Investment Securities Held-to-Maturity
(Dollars in thousands)
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
September 30, 2018
State and political subdivisions $ 607,867
$ 1,917
$ 12,037
$ 597,747
Trust preferred securities 500
—
50
450
Total $ 608,367
$ 1,917
$ 12,087
$ 598,197
December 31, 2017
State and political subdivisions $ 676,593
$ 3,856
$ 17,933
$ 662,516
Trust preferred securities 500
—
110
390
Total $ 677,093
$ 3,856
$ 18,043
$ 662,906

Investment securities are classified at the time they are acquired as either available-for-sale, held-to-maturity or carried at fair value based upon various factors, including asset/liability management strategies, liquidity and profitability objectives and regulatory requirements. Debt securities classified as available-for-sale and equity securities are recorded at fair value. Investment securities carried at fair value may be sold prior to maturity based upon asset/liability management decisions. Unrealized gains or losses on available-for-sale debt securities are recorded as part of accumulated other comprehensive income in stockholders’ equity. Unrealized gains or losses on equity securities were recorded as part of accumulated other comprehensive income in stockholders' equity through December 31, 2017. Effective January 1, 2018, the amendments within ASU 2016-01, require that equity investments be measured at fair value with changes in fair value recognized in net income. At January 1, 2018, the

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Corporation's equity securities consisted of $1.8 million in preferred stocks. The Corporation recognized a cumulative effect adjustment in the amount of $344 thousand as of January 1, 2018 to reclassify the fair value position into retained earnings. Beginning January 1, 2018, the fair value changes on equity securities are recognized in net income, rather than in accumulated other comprehensive income. The Corporation sold its remaining position in equity securities during the second quarter of 2018. Held-to-maturity securities are carried at amortized cost, adjusted for amortization of premiums or accretion of discounts.

The majority of the Corporation’s residential mortgage-backed securities and collateralized mortgage obligations are backed by a U.S. government agency (Government National Mortgage Association) or a government sponsored enterprise (Federal Home Loan Mortgage Corporation or Federal National Mortgage Association).

~~Proceeds from sales of investment securities carried at fair value and the associated gains and losses recorded in earnings are listed below:~~

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 2018 2017
Proceeds $ —
$ 7,035
$ 4,215
$ 17,085
Gross gains —
1
42
168
Gross losses —
—
(39 ) —

The following is a summary of the amortized cost and fair value of investment securities at September 30, 2018, by maturity, for both carried at fair value and held-to-maturity. The maturities of residential mortgage-backed securities and collateralized mortgage obligations are based on scheduled principal payments. The maturities of all other debt securities are based on final contractual maturity.

September 30, 2018
(Dollars in thousands)
Amortized
Cost
Fair Value
Investment Securities Carried at Fair Value:
Due in one year or less $ 32,586
$ 32,424
Due after one year through five years 121,421
119,478
Due after five years through ten years 455,582
443,027
Due after ten years 2,196,692
2,141,951
Total $ 2,806,281
$ 2,736,880
Investment Securities Held-to-Maturity:
Due in one year or less $ 57,403
$ 57,248
Due after one year through five years 221,335
218,555
Due after five years through ten years 157,517
153,997
Due after ten years 172,112
168,397
Total $ 608,367
$ 598,197

~~Securities with a carrying value of $1.02 billion and $937.2 million were pledged at September 30, 2018 and December 31, 2017, respectively, to secure borrowings and deposits.~~

At September 30, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders' equity.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

The following schedule summarizes information for debt securities both available-for-sale and held-to-maturity with gross unrealized losses at September 30, 2018 and December 31, 2017, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position. As of September 30, 2018, the Corporation’s securities portfolio consisted of 2,074 securities, 1,525 of which were in an unrealized loss position.

Less Than 12 Months 12 Months or More Total
(Dollars in thousands)
Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses
September 30, 2018
Government sponsored agencies $ 204,095
$ 2,564
$ 39,573
$ 1,640
$ 243,668
$ 4,204
State and political subdivisions 563,202
14,773
414,480
11,819
977,682
26,592
Residential mortgage-backed securities 119,911
2,907
55,068
3,061
174,979
5,968
Collateralized mortgage obligations 990,167
19,414
456,347
19,940
1,446,514
39,354
Corporate bonds 141,365
3,773
76,955
3,135
218,320
6,908
Trust preferred securities 13,716
60
2,789
98
16,505
158
Total $ 2,032,456

$ 43,491
$ 1,045,212
$ 39,693
$ 3,077,668
$ 83,184
December 31, 2017
Government sponsored agencies $ 63,818
$ 510
$ 24,621
$ 438
$ 88,439
$ 948
State and political subdivisions 437,407
12,268
349,242
10,093
786,649
22,361
Residential mortgage-backed securities 93,508
383
56,576
1,243
150,084
1,626
Collateralized mortgage obligations 713,525
7,235
73,707
1,249
787,232
8,484
Corporate bonds 71,447
1,138
47,878
454
119,325
1,592
Trust preferred securities —
—
11,164
172
11,164
172
Total $ 1,379,705
$ 21,534
$ 563,188
$ 13,649
$ 1,942,893
$ 35,183

An assessment is performed quarterly by the Corporation to determine whether unrealized losses in its debt securities portfolio are temporary or other-than-temporary by carefully considering all reasonably available information. The Corporation reviews factors such as financial statements, credit ratings, news releases and other pertinent information of the underlying issuer or company to make its determination. Management did not believe any individual unrealized loss on any debt security, as of September 30, 2018, represented other-than-temporary impairment ("OTTI") as the unrealized losses for these securities resulted primarily from changes in benchmark U.S. Treasury interest rates and not credit issues. Management believed that the unrealized losses on debt securities at September 30, 2018 were temporary in nature and due primarily to changes in interest rates and reduced market liquidity and not as a result of credit-related issues.

At September 30, 2018, the Corporation did not have the intent to sell any of its impaired debt securities and believed that it was more-likely-than-not that the Corporation will not have to sell any such debt securities before a full recovery of amortized cost. Accordingly, at September 30, 2018, the Corporation believed the impairments in its debt securities portfolio were temporary in nature. However, there is no assurance that OTTI may not occur in the future.

~~Note 4: Loans~~

Loan portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its allowance. The Corporation has two loan portfolio segments (commercial loans and consumer loans) that it uses in determining the allowance. Both quantitative and qualitative factors are used by management at the loan portfolio segment level in determining the adequacy of the allowance for the Corporation. Classes of loans are a disaggregation of an entity’s loan portfolio segments. Classes of loans are defined as a group of loans which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. The Corporation has six classes of loans, which are set forth below.

~~Commercial~~ — Loans and lines of credit to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital, operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the business. Commercial loans are predominately

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~secured by equipment, inventory, accounts receivable, personal guarantees of the owner and other sources of repayment, although the Corporation may also secure commercial loans with real estate.~~

~~Commercial real estate~~ — Loans secured by real estate occupied by the borrower for ongoing operations (owner-occupied), non-owner occupied real estate leased to one or more tenants (non-owner occupied) and vacant land that has been acquired for investment or future land development (vacant land).

~~Real estate construction and land development~~ — Real estate construction loans represent secured loans for the construction of business properties. Real estate construction loans often convert to a commercial real estate loan at the completion of the construction period. Land development loans represent secured development loans made to borrowers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. Most land development loans are originated with the intention that the loans will be paid through the sale of developed lots/land by the developers within twelve months of the completion date. Land development loans at September 30, 2018 and December 31, 2017 were primarily comprised of loans to develop residential properties.

~~Residential mortgage~~ — Loans secured by one- to four-family residential properties, generally with fixed interest rates for periods of fifteen years or less. The loan-to-value ratio at the time of origination is generally 80% or less. Residential mortgage loans with a loan-to-value ratio of more than 80% generally require private mortgage insurance.

~~Consumer installment~~ — Loans to consumers primarily for the purpose of acquiring automobiles, recreational vehicles and watercraft and comprised primarily of indirect loans purchased from dealers. These loans generally consist of relatively small amounts that are spread across many individual borrowers.

~~Home equity~~ ~~— Loans and lines of credit whereby consumers utilize equity in their personal residence, generally through a second mortgage, as collateral to secure the loan.~~

Loans held-for-sale, comprised of fixed-rate residential mortgage loans, were $93.7 million at September 30, 2018 and $52.1 million at December 31, 2017. The Corporation sold loans totaling $177.2 million and $569.8 million during the three and nine months ended September 30, 2018, respectively and $210.2 million and $601.7 million during the three and nine months ended September 30, 2017, respectively.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Commercial, commercial real estate, and real estate construction and land development loans are referred to as the Corporation’s commercial loan portfolio, while residential mortgage, consumer installment and home equity loans are referred to as the Corporation’s consumer loan portfolio. A summary of the Corporation's loans follows:

(Dollars in thousands) Originated
Acquired⁽¹⁾
Total Loans
September 30, 2018
Commercial loan portfolio:
Commercial $ 2,951,453
$ 768,469
$ 3,719,922
Commercial real estate:
Owner-occupied 1,334,588
563,346
1,897,934
Non-owner occupied 1,875,155
864,545
2,739,700
Vacant land 46,463
27,524
73,987
Total commercial real estate 3,256,206
1,455,415
4,711,621
Real estate construction and land development 554,701
67,446
622,147
Subtotal 6,762,360
2,291,330
9,053,690
Consumer loan portfolio:
Residential mortgage 2,285,611
1,106,376
3,391,987
Consumer installment 1,483,540
76,725
1,560,265
Home equity 613,931
176,379
790,310
Subtotal 4,383,082
1,359,480
5,742,562
Total loans⁽²⁾
$ 11,145,442
$ 3,650,810
$ 14,796,252
December 31, 2017
Commercial loan portfolio:
Commercial $ 2,407,606
$ 978,036
$ 3,385,642
Commercial real estate:
Owner-occupied 1,185,614
627,948
1,813,562
Non-owner occupied 1,518,787
1,087,974
2,606,761
Vacant land 47,024
33,323
80,347
Total commercial real estate 2,751,425
1,749,245
4,500,670
Real estate construction and land development 498,155
76,060
574,215
Subtotal 5,657,186
2,803,341
8,460,527
Consumer loan portfolio:
Residential mortgage 1,967,857
1,284,630
3,252,487
Consumer installment 1,510,540
102,468
1,613,008
Home equity 611,846
217,399
829,245
Subtotal 4,090,243
1,604,497
5,694,740
Total loans⁽²⁾
$ 9,747,429
$ 4,407,838
$ 14,155,267


⁽¹⁾	~~Acquired loans are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30).~~


⁽²⁾	~~Reported net of deferred costs totaling $19.0 million and $26.1 million at September 30, 2018 and December 31, 2017, respectively.~~

The Corporation acquired loans at fair value as of the acquisition date, which includes loans acquired in the acquisitions of Talmer Bancorp, Inc. ("Talmer"), Lake Michigan Financial Corporation ("Lake Michigan"), Monarch Community Bancorp, Inc. ("Monarch"), Northwestern Bancorp, Inc. ("Northwestern") and O.A.K. Financial Corporation ("OAK"). Acquired loans are accounted for under ASC 310-30 which recognizes the expected shortfall of expected future cash flows, as compared to the contractual amount due, as nonaccretable discount. Any excess of the net present value of expected future cash flows over the acquisition date fair value is recognized as the accretable discount, or accretable yield. The accretable discount is recognized over the expected remaining life of the acquired loans on a pool basis. In the event an acquired loan is renewed or extended, the loan continues to be accounted for as an acquired loan on a pool basis in accordance with ASC 310-30.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Activity for the accretable yield, which includes contractually due interest for acquired loans that have been renewed or extended since the date of acquisition and continue to be accounted for in loan pools in accordance with ASC 310-30, follows:

(Dollars in thousands) Talmer Lake Michigan Monarch North-western OAK Total
Three Months Ended September 30, 2018
Balance at beginning of period $ 616,168
$ 80,442
$ 20,131
$ 49,731
$ 14,292
$ 780,764
Accretion recognized in interest income (40,695 ) (5,980 ) (919 ) (4,341 ) (2,338 ) (54,273 )
Net reclassification (to) from nonaccretable difference⁽¹⁾
20,250
3,108
(376 ) (765 ) (1,149 ) 21,068
Balance at end of period $ 595,723
$ 77,570
$ 18,836
$ 44,625
$ 10,805
$ 747,559

Three Months Ended September 30, 2017
Balance at beginning of period $ 801,369
$ 121,572
$ 24,270
$ 71,212
$ 19,796
$ 1,038,219
Accretion recognized in interest income (43,816 ) (7,201 ) (1,119 ) (5,263 ) (3,004 ) (60,403 )
Net reclassification (to) from nonaccretable difference⁽¹⁾
11,861
(14,482 ) 168
(1,358 ) 1,999
(1,812 )
Balance at end of period $ 769,414
$ 99,889
$ 23,319
$ 64,591
$ 18,791
$ 976,004

Nine Months Ended September 30, 2018
Balance at beginning of period $ 731,353
$ 95,124
$ 22,496
$ 60,814
$ 17,110
$ 926,897
Accretion recognized in interest income (125,471 ) (19,040 ) (3,037 ) (13,863 ) (8,323 ) (169,734 )
Net reclassification (to) from nonaccretable difference⁽¹⁾
(10,159 ) 1,486
(623 ) (2,326 ) 2,018
(9,604 )
Balance at end of period $ 595,723
$ 77,570
$ 18,836
$ 44,625
$ 10,805
$ 747,559

Nine Months Ended September 30, 2017
Balance at beginning of period $ 798,210
$ 121,416
$ 27,182
$ 69,847
$ 23,316
$ 1,039,971
Accretion recognized in interest income (133,478 ) (22,050 ) (3,459 ) (15,222 ) (9,595 ) (183,804 )
Net reclassification (to) from nonaccretable difference⁽¹⁾
104,682
523
(404 ) 9,966
5,070
119,837
Balance at end of period $ 769,414
$ 99,889
$ 23,319
$ 64,591
$ 18,791
$ 976,004

⁽¹⁾

The net reclassification results from changes in expected cash flows of the acquired loans which may include increases in the amount of contractual principal and interest expected to be collected due to improvement in credit quality, increases in balances outstanding from advances, renewals, extensions and interest rates; as well as reductions in contractual principal and interest expected to be collected due to credit deterioration, payoffs, and decreases in interest rates.

~~Credit Quality Monitoring~~

The Corporation maintains loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally only within the Corporation’s market areas. The Corporation’s lending markets generally consist of communities throughout Michigan and additional communities located within Northeast Ohio and Northern Indiana.

The Corporation, through Chemical Bank, has a commercial loan portfolio approval process involving underwriting and individual and group loan approval authorities to consider credit quality and loss exposure at loan origination. The loans in the Corporation’s commercial loan portfolio are risk rated at origination based on the grading system set forth below. The approval authority of relationship managers is established based on experience levels, with credit decisions greater than $1.25 million requiring credit officer approval and credit decisions greater than $3.0 million requiring group loan authority approval, except for six executive and senior officers who have varying loan limits up to $8.0 million. With respect to the group loan authorities, Chemical Bank has various regional loan committees that meet weekly to consider loans ranging in amounts of $3.0 million to $7.0 million, and a senior loan committee, consisting of certain executive and senior officers, that meets weekly to consider loans ranging in amounts from $7.0 million up to Chemical Bank's internal lending limit, depending on risk rating and credit action

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~required. Credit actions exceeding Chemical Bank's internal lending limit require the approval of the board of directors of Chemical Bank.~~

The majority of the Corporation’s consumer loan portfolio is comprised of secured loans that are relatively small. The Corporation’s consumer loan portfolio has a centralized approval process which utilizes standardized underwriting criteria. The ongoing measurement of credit quality of the consumer loan portfolio is largely done on an exception basis. If payments are made on schedule, as agreed, then no further monitoring is performed. However, if delinquency occurs, the delinquent loans are turned over to the Corporation’s collection department for resolution, resulting in repossession or foreclosure if payments are not brought current. Credit quality for the entire consumer loan portfolio is measured by the periodic delinquency rate, nonaccrual amounts and actual losses incurred.

Loans in the commercial loan portfolio tend to be larger and more complex than those in the consumer loan portfolio, and therefore, are subject to more intensive monitoring. All loans in the commercial loan portfolio have an assigned relationship manager, and most borrowers provide periodic financial and operating information that allows the relationship managers to stay abreast of credit quality during the life of the loans. The risk ratings of loans in the commercial loan portfolio are reassessed at least annually, with loans below an acceptable risk rating reassessed more frequently and reviewed by various loan committees within the Corporation at least quarterly.

The Corporation maintains a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio, including the accuracy of loan grades. The Corporation also maintains an independent appraisal review function that participates in the review of all appraisals obtained by the Corporation for loans in the commercial loan portfolio.

~~Credit Quality Indicators~~

~~Commercial Loan Portfolio~~

Risk categories for the Corporation's commercial loan portfolio establish the credit quality of a borrower by measuring liquidity, debt capacity, coverage and payment behavior as shown in the borrower's financial statements. The risk categories also measure the quality of the borrower's management and the repayment support offered by any guarantors. Risk categories for the Corporation's commercial loan portfolio are described as follows:

~~Pass:~~ ~~Includes all loans without weaknesses or potential weaknesses identified in the categories of special mention, substandard or doubtful.~~

~~Special Mention:~~ Loans with potential credit weakness or credit deficiency, which, if not corrected, pose an unwarranted financial risk that could weaken the loan by adversely impacting the future repayment ability of the borrower.

~~Substandard:~~ Loans with a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected.

~~Doubtful:~~ Loans with all the characteristics of a loan classified as Substandard, with the added characteristic that credit weaknesses make collection in full highly questionable and improbable. The primary source of repayment is nonexistent and there is doubt as to the value of the secondary source of repayments. A doubtful asset has a high probability of total or substantial loss, but because of pending events that may strengthen the asset, its classification as loss is deferred.

~~Loss:~~ An asset classified as loss is considered uncollectible and of such little value that the continuance as a bankable asset is not warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even through partial recovery may occur in the future.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~The following schedule presents the recorded investment of loans in the commercial loan portfolio by credit risk categories at September 30, 2018 and December 31, 2017:~~

(Dollars in thousands) Pass Special Mention Substandard Doubtful Total
September 30, 2018
Originated Portfolio:
Commercial $ 2,840,100
$ 54,258
$ 57,095
$ —
$ 2,951,453
Commercial real estate:
Owner-occupied 1,265,111
33,290
36,168
19
1,334,588
Non-owner occupied 1,854,887
12,542
7,726
—
1,875,155
Vacant land 40,904
480
5,076
3
46,463
Total commercial real estate 3,160,902
46,312
48,970
22
3,256,206
Real estate construction and land development 517,561
5,100
32,040
—
554,701
Subtotal 6,518,563
105,670
138,105
22
6,762,360
Acquired Portfolio:
Commercial 707,054
36,227
25,188
—
768,469
Commercial real estate:
Owner-occupied 505,246
29,840
28,249
11
563,346
Non-owner occupied 805,466
31,647
27,432
—
864,545
Vacant land 27,311
213
—
—
27,524
Total commercial real estate 1,338,023
61,700
55,681
11
1,455,415
Real estate construction and land development 66,294
138
1,014
—
67,446
Subtotal 2,111,371
98,065
81,883
11
2,291,330
Total $ 8,629,934
$ 203,735
$ 219,988
$ 33
$ 9,053,690
December 31, 2017
Originated Portfolio:
Commercial $ 2,316,464
$ 41,059
$ 50,083
$ —
$ 2,407,606
Commercial real estate:
Owner-occupied 1,133,609
19,438
32,567
—
1,185,614
Non-owner occupied 1,504,195
4,728
9,864
—
1,518,787
Vacant land 39,775
38
7,211
—
47,024
Total commercial real estate 2,677,579
24,204
49,642
—
2,751,425
Real estate construction and land development 494,528
837
2,790
—
498,155
Subtotal 5,488,571
66,100
102,515
—
5,657,186
Acquired Portfolio:
Commercial 873,861
68,418
35,539
218
978,036
Commercial real estate:
Owner-occupied 580,127
23,998
23,036
787
627,948
Non-owner occupied 995,709
43,645
48,620
—
1,087,974
Vacant land 27,849
327
5,147
—
33,323
Total commercial real estate 1,603,685
67,970
76,803
787
1,749,245
Real estate construction and land development 72,346
2,218
1,496
—
76,060
Subtotal 2,549,892
138,606
113,838
1,005
2,803,341
Total $ 8,038,463
$ 204,706
$ 216,353
$ 1,005
$ 8,460,527

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Consumer Loan Portfolio~~

The Corporation evaluates the credit quality of loans in the consumer loan portfolio based on the performing or nonperforming status of the loan. Loans in the consumer loan portfolio that are performing in accordance with original contractual terms and are less than 90 days past due and accruing interest are considered to be in a performing status, while those that are in nonaccrual status, contractually past due 90 days or more as to interest or principal payments, are considered to be in a nonperforming status. Loans accounted for under ASC 310-30, "Acquired loans", that are not performing in accordance with contractual terms are not reported as nonperforming because these loans are recorded in pools at their net realizable value based on the principal and interest the Corporation expects to collect on these loans.

The following schedule presents the recorded investment of loans in the consumer loan portfolio based on loans in a performing status and loans in a nonperforming status at September 30, 2018 and December 31, 2017:

(Dollars in thousands) Residential Mortgage
Consumer
Installment
Home Equity
Total
Consumer
September 30, 2018
Originated Loans:
Performing $ 2,276,000
$ 1,482,190
$ 610,662
$ 4,368,852
Nonperforming 9,611
1,350
3,269
14,230
Subtotal 2,285,611
1,483,540
613,931
4,383,082
Acquired Loans 1,106,376
76,725
176,379
1,359,480
Total $ 3,391,987
$ 1,560,265
$ 790,310
$ 5,742,562
December 31, 2017
Originated Loans:
Performing $ 1,959,222
$ 1,509,698
$ 607,541
$ 4,076,461
Nonperforming 8,635
842
4,305
13,782
Subtotal 1,967,857
1,510,540
611,846
4,090,243
Acquired Loans 1,284,630
102,468
217,399
1,604,497
Total $ 3,252,487
$ 1,613,008
$ 829,245
$ 5,694,740

~~Nonperforming Assets and Past Due Loans~~

Nonperforming assets consist of loans for which the accrual of interest has been discounted, other real estate owned acquired through acquisitions, other real estate owned obtained through foreclosure and other repossessed assets.

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payments. Loans outside of those accounted for under ASC 310-30 are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful. The accrual of interest is discontinued when a loan is placed in nonaccrual status and any payments received reduce the carrying value of the loan. A loan may be placed back on accrual status if all contractual payments have been received and collection of future principal and interest payments are no longer doubtful. Acquired loans that are not performing in accordance with contractual terms are not reported as nonperforming because these loans are recorded in pools at their net realizable value based on the principal and interest the Corporation expects to collect on these loans.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~A summary of nonperforming loans follows:~~

(Dollars in thousands) September 30,
2018 December 31,
2017
Nonperforming assets
Nonaccrual loans:
Commercial $ 25,328
$ 19,691
Commercial real estate:
Owner-occupied 14,936
19,070
Non-owner occupied 8,991
5,270
Vacant land 4,711
5,205
Total commercial real estate 28,638
29,545
Real estate construction and land development 28,477
77
Residential mortgage 9,611
8,635
Consumer installment 1,350
842
Home equity 3,269
4,305
Total nonaccrual loans 96,673
63,095
Other real estate owned and repossessed assets 6,584
8,807
Total nonperforming assets $ 103,257
$ 71,902
Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30
Commercial $ 632
$ —
Commercial real estate:
Owner-occupied 47
—
Non-owner occupied —
13
Total commercial real estate 47
13
Real estate construction and land development 38
—
Home equity 475
1,364
Total accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30 $ 1,192
$ 1,377

~~The Corporation’s nonaccrual loans at September 30, 2018 and December 31, 2017 included $28.1 million and $29.1 million, respectively, of nonaccrual TDRs.~~

~~The Corporation had $5.4 million of residential mortgage loans that were in the process of foreclosure at September 30, 2018, compared to $4.2 million at December 31, 2017.~~

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Loan delinquency, excluding acquired loans accounted for under ASC 310-30, was as follows:~~

(Dollars in thousands)
30-59
days
past due

60-89
days
past due
90 days or more past due Total past due Current Total loans 90 days or more past due and still accruing
September 30, 2018
Originated Portfolio:
Commercial $ 9,280
$ 8,770
$ 12,855
$ 30,905
$ 2,920,548
$ 2,951,453
$ 632
Commercial real estate:
Owner-occupied 8,052
2,440
8,458
18,950
1,315,638
1,334,588
47
Non-owner occupied 1,993
762
2,054
4,809
1,870,346
1,875,155
—
Vacant land 277
1,399
2,460
4,136
42,327
46,463
—
Total commercial real estate 10,322
4,601
12,972
27,895
3,228,311
3,256,206
47
Real estate construction and land development 1,244
13,238
15,277
29,759
524,942
554,701
38
Residential mortgage 3,889
1,576
4,752
10,217
2,275,394
2,285,611
—
Consumer installment 3,555
657
617
4,829
1,478,711
1,483,540
—
Home equity 5,185
1,123
1,704
8,012
605,919
613,931
475
Total $ 33,475
$ 29,965
$ 48,177
$ 111,617
$ 11,033,825
$ 11,145,442
$ 1,192
December 31, 2017
Originated Portfolio:
Commercial $ 13,906
$ 3,766
$ 9,494
$ 27,166
$ 2,380,440
$ 2,407,606
$ —
Commercial real estate:
Owner-occupied 7,644
1,306
5,027
13,977
1,171,637
1,185,614
—
Non-owner occupied 1,653
228
693
2,574
1,516,213
1,518,787
13
Vacant land 83
28
153
264
46,760
47,024
—
Total commercial real estate 9,380
1,562
5,873
16,815
2,734,610
2,751,425
13
Real estate construction and land development —
—
—
—
498,155
498,155
—
Residential mortgage 2,795
1,415
858
5,068
1,962,789
1,967,857
—
Consumer installment 3,324
442
226
3,992
1,506,548
1,510,540
—
Home equity 2,319
1,301
2,196
5,816
606,030
611,846
1,364
Total $ 31,724
$ 8,486
$ 18,647
$ 58,857
$ 9,688,572
$ 9,747,429
$ 1,377

~~Impaired Loans~~

A loan is impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include nonperforming loans and all TDRs. Impaired loans are accounted for at the lower of the present value of expected cash flows or the estimated fair value of the collateral. When the present value of expected cash flows or the fair value of the collateral of an impaired loan not accounted for under ASC 310-30 is less than the amount of unpaid principal outstanding on the loan, the recorded principal balance of the loan is reduced to its carrying value through either a specific allowance for loan loss or a partial charge-off of the loan balance.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~The following schedules present impaired loans by classes of loans at September 30, 2018 and December 31, 2017:~~

(Dollars in thousands)
Recorded
Investment

Unpaid
Principal
Balance

Related
Valuation
Allowance
September 30, 2018
Impaired loans with a valuation allowance:
Commercial $ 13,394
$ 16,109
$ 1,110
Commercial real estate:
Owner-occupied 13,278
15,607
1,281
Non-owner occupied 3,187
4,595
142
Vacant land 2,130
2,130
373
Total commercial real estate 18,595
22,332
1,796
Real estate construction and land development 28,575
28,575
650
Residential mortgage 12,879
12,879
1,146
Consumer installment 1,071
1,071
117
Home equity 3,697
3,697
255
Subtotal 78,211
84,663
5,074
Impaired loans with no related valuation allowance:
Commercial 25,021
26,427
—
Commercial real estate:
Owner-occupied 10,852
11,490
—
Non-owner occupied 12,161
13,099
—
Vacant land 2,859
3,945
—
Total commercial real estate 25,872
28,534
—
Real estate construction and land development 140
207
—
Residential mortgage 7,988
7,988
—
Consumer installment 475
475
—
Home equity 1,743
1,743
—
Subtotal 61,239
65,374
—
Total impaired loans:
Commercial 38,415
42,536
1,110
Commercial real estate:
Owner-occupied 24,130
27,097
1,281
Non-owner occupied 15,348
17,694
142
Vacant land 4,989
6,075
373
Total commercial real estate 44,467
50,866
1,796
Real estate construction and land development 28,715
28,782
650
Residential mortgage 20,867
20,867
1,146
Consumer installment 1,546
1,546
117
Home equity 5,440
5,440
255
Total $ 139,450
$ 150,037
$ 5,074

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

(Dollars in thousands)
Recorded
Investment

Unpaid
Principal
Balance

Related
Valuation
Allowance
December 31, 2017
Impaired loans with a valuation allowance:
Commercial $ 28,897
$ 31,655
$ 2,296
Commercial real estate:
Owner-occupied 17,774
21,588
2,317
Non-owner occupied 5,307
7,870
316
Vacant land 4,922
5,122
594
Total commercial real estate 28,003
34,580
3,227
Real estate construction and land development 313
313
14
Residential mortgage 15,872
15,872
1,487
Consumer installment 966
966
120
Home equity 4,570
4,570
858
Subtotal 78,621
87,956
8,002
Impaired loans with no related valuation allowance:
Commercial 8,504
9,291
—
Commercial real estate:
Owner-occupied 11,351
12,631
—
Non-owner occupied 5,977
6,438
—
Vacant land 752
792
—
Total commercial real estate 18,080
19,861
—
Residential mortgage 4,902
4,902
—
Home equity 1,770
1,770
—
Subtotal 33,256
35,824
—
Total impaired loans:
Commercial 37,401
40,946
2,296
Commercial real estate:
Owner-occupied 29,125
34,219
2,317
Non-owner occupied 11,284
14,308
316
Vacant land 5,674
5,914
594
Total commercial real estate 46,083
54,441
3,227
Real estate construction and land development 313
313
14
Residential mortgage 20,774
20,774
1,487
Consumer installment 966
966
120
Home equity 6,340
6,340
858
Total $ 111,877
$ 123,780
$ 8,002

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

The following schedule presents additional information regarding impaired loans by classes of loans segregated by those requiring a valuation allowance and those not requiring a valuation allowance for the three and nine months ended September 30, 2018 and 2017, and the respective interest income amounts recognized:

Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
(Dollars in thousands)
Average
recorded
investment

Interest income
recognized
while on
impaired status

Average
recorded
investment

Interest income
recognized
while on
impaired status
Average
recorded
investment Interest income
recognized
while on
impaired status Average
recorded
investment Interest income
recognized
while on
impaired status
Impaired loans with a valuation allowance:
Commercial $ 13,945
$ 67
$ 25,628
$ 222
$ 17,495
$ 343
$ 25,278
$ 647
Commercial real estate:
Owner-occupied 11,977
94
13,401
155
12,999
257
14,083
459
Non-owner occupied 3,697
13
2,457
17
3,271
34
2,939
68
Vacant land 1,589
7
2,442
25
2,198
39
2,098
75
Total commercial real estate 17,263
114
18,300
197
18,468
330
19,120
602
Real estate construction and land development 9,647
2
175
3
3,372
6
159
8
Residential mortgage 11,620
117
15,945
144
12,662
349
16,529
446
Consumer installment 911
3
748
1
961
6
737
3
Home equity 3,022
20
4,369
21
3,176
58
4,154
58
Subtotal $ 56,408
$ 323
$ 65,165
$ 588
$ 56,134
$ 1,092
$ 65,977
$ 1,764
Impaired loans with no related valuation allowance:
Commercial $ 24,114
$ 123
$ 10,120
$ 14
$ 20,773
$ 365
$ 10,142
$ 92
Commercial real estate:
Owner-occupied 13,831
68
13,009
1
14,588
205
10,862
13
Non-owner occupied 12,776
81
8,942
88
9,825
184
9,487
255
Vacant land 2,874
—
3,484
12
2,694
—
4,348
36
Total commercial real estate 29,481
149
25,435
101
27,107
389
24,697
304
Real estate construction and land development 3,857
2
71
—
1,986
5
86
—
Residential mortgage 8,605
31
5,144
8
7,272
79
4,511
25
Consumer installment 537
—
244
—
240
—
201
—
Home equity 2,191
8
1,639
—
2,241
17
1,227
6
Subtotal $ 68,785

$ 313

$ 42,653

$ 123

$ 59,619
$ 855
$ 40,864
$ 427
Total impaired loans:
Commercial $ 38,059
$ 190
$ 35,748
$ 236
$ 38,268
$ 708
$ 35,420
$ 739
Commercial real estate:
Owner-occupied 25,808
162
26,410
156
27,587
462
24,945
472
Non-owner occupied 16,473
94
11,399
105
13,096
218
12,426
323
Vacant land 4,463
7
5,926
37
4,892
39
6,446
111
Total commercial real estate 46,744
263
43,735
298
45,575
719
43,817
906
Real estate construction and land development 13,504
4
246
3
5,358
11
245
8
Residential mortgage 20,225
148
21,089
152
19,934
428
21,040
471
Consumer installment 1,448
3
992
1
1,201
6
938
3
Home equity 5,213
28
6,008
21
5,417
75
5,381
64
Total $ 125,193
$ 636
$ 107,818

$ 711

$ 115,753
$ 1,947
$ 106,841
$ 2,191

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

The difference between an impaired loan’s recorded investment and the unpaid principal balance for originated loans represents a partial charge-off resulting from a confirmed loss due to the value of the collateral securing the loan being below the loan balance and management’s assessment that full collection of the loan balance is not likely.

~~Impaired loans included $43.0 million and $48.8 million at September 30, 2018 and December 31, 2017, respectively, of accruing TDRs.~~

~~Loans Modified Under Troubled Debt Restructurings (TDRs)~~

The following tables present the recorded investment of loans modified into TDRs during the three and nine months ended September 30, 2018 and 2017 by type of concession granted. In cases where more than one type of concession was granted, the loans were categorized based on the most significant concession.

Concession type
(Dollars in thousands) Principal
deferral Principal
reduction Interest
rate Forbearance
agreement Total
number
of loans Pre-modification recorded investment Post-modification recorded investment
For the three months ended September 30, 2018
Commercial loan portfolio:
Commercial $ 2,104
$ —
$ 165
$ 1
13
$ 2,277
$ 2,270
Commercial real estate:
Owner-occupied 438
—
—
—
2
438
438
Non-owner occupied —
66
—
—
1
69
66
Total commercial real estate 438
66
—
—
3
507
504
Total Commercial 2,542
66
165
1
16
2,784
2,774
Consumer loan portfolio:
Residential mortgage —
111
108
—
2
220
219
Consumer installment 48
74
44
—
11
172
166
Home equity 91
73
64
—
4
228
228
Total Consumer 139
258
216
—
17
620
613
Total loans $ 2,681
$ 324
$ 381
$ 1
33
$ 3,404
$ 3,387
For the nine months ended September 30, 2018
Commercial loan portfolio:
Commercial $ 3,747
$ —
$ 1,448
$ 262
44
$ 5,481
$ 5,457
Commercial real estate:
Owner-occupied 808
—
888
513
10
2,221
2,209
Non-owner occupied 68
66
—
—
2
143
134
Total commercial real estate 876
66
888
513
12
2,364
2,343
Total Commercial 4,623
66
2,336
775
56
7,845
7,800
Consumer loan portfolio:
Residential mortgage 269
151
147
—
9
577
567
Consumer installment 134
141
82
—
36
372
357
Home equity 357
73
179
—
13
652
609
Total Consumer 760
365
408
—
58
1,601
1,533
Total loans $ 5,383
$ 431
$ 2,744
$ 775
114
$ 9,446
$ 9,333

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Concession type
(Dollars in thousands) Principal
deferral Interest
rate Forbearance
agreement Total
number
of loans Pre-modification recorded investment Post-modification recorded investment
For the three months ended September 30, 2017
Commercial loan portfolio:
Commercial $ 506
$ 281
$ 1,332
14
$ 2,173
$ 2,119
Commercial real estate:
Owner-occupied —
42
335
3
390
377
Non-owner occupied —
27
—
1
28
27
Total commercial real estate —
69
335
4
418
404
Real estate construction and land development 35
—
—
1
36
35
Total Commercial 541
350
1,667
19
2,627
2,558
Consumer loan portfolio:
Residential mortgage 76
122
—
3
262
198
Consumer installment 47
7
—
11
58
54
Home equity 116
—
—
5
124
116
Total Consumer 239
129
—
19
444
368
Total loans $ 780
$ 479
$ 1,667
38
$ 3,071
$ 2,926
For the nine months ended September 30, 2017
Commercial loan portfolio:
Commercial $ 841
$ 1,648
$ 1,911
26
$ 4,476
$ 4,400
Commercial real estate:
Owner-occupied 447
182
457
9
1,106
1,086
Non-owner occupied —
27
—
1
28
27
Total commercial real estate 447
209
457
10
1,134
1,113
Real estate construction and land development 35
—
—
1
36
35
Total Commercial 1,323
1,857
2,368
37
5,646
5,548
Consumer loan portfolio:
Residential mortgage 211
383
—
9
676
594
Consumer installment 79
7
—
17
93
86
Home equity 380
—
—
10
449
380
Total Consumer 670
390
—
36
1,218
1,060
Total loans $ 1,993
$ 2,247
$ 2,368
73
$ 6,864
$ 6,608

The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. The difference between the pre-modification and post-modification recorded investment of residential mortgage TDRs represents impairment recognized by the Corporation through the provision for loan losses computed based on a loan's post-modification present value of expected future cash flows discounted at the loan's original effective interest rate.

~~The following schedule presents the Corporation's TDRs at September 30, 2018 and December 31, 2017:~~

(Dollars in thousands) Accruing TDRs Nonaccrual TDRs Total
September 30, 2018
Commercial loan portfolio $ 29,383
$ 24,091
$ 53,474
Consumer loan portfolio 13,642
3,970
17,612
Total $ 43,025
$ 28,061
$ 71,086
December 31, 2017
Commercial loan portfolio $ 34,484
$ 24,358
$ 58,842
Consumer loan portfolio 14,298
4,748
19,046
Total $ 48,782
$ 29,106
$ 77,888

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

The following schedule includes TDRs for which there was a payment default during the three and nine months ended September 30, 2018 and 2017, whereby the borrower was past due with respect to principal and/or interest for 90 days or more, and the loan became a TDR during the twelve-month period prior to the default:

For The Three Months Ended September 30, 2018 For The Nine Months Ended September 30, 2018
(Dollars in thousands) Number of loans Principal balance Number of loans Principal balance
Commercial loan portfolio (commercial) 6
$ 981
9
$ 1,130
Consumer loan portfolio (residential mortgage) 6
241
14
286
Total 12
$ 1,222
23
$ 1,416

For The Three Months Ended September 30, 2017 For The Nine Months Ended September 30, 2017
(Dollars in thousands) Number of loans Principal balance Number of loans Principal balance
Commercial loan portfolio (commercial) —
$ —
5
$ 1,617
Consumer loan portfolio (residential mortgage) —
—
5
163
Total —
$ —
10
$ 1,780

~~Commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $2.9 million and $2.0 million at September 30, 2018 and December 31, 2017, respectively.~~

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Allowance for Loan Losses~~

~~The following schedule presents, by loan portfolio segment, the changes in the allowance for the originated loan portfolio for the three and nine months ended September 30, 2018 and 2017.~~

(Dollars in thousands)
Commercial
Loan
Portfolio

Consumer
Loan
Portfolio
Total
Originated Loan Portfolio
Changes in allowance for loan losses for the three months ended September 30, 2018:
Beginning balance $ 72,665
$ 27,350
$ 100,015
Provision for loan losses 2,064
2,994
5,058
Charge-offs (1,048 ) (2,680 ) (3,728 )
Recoveries 1,133
593
1,726
Ending balance $ 74,814
$ 28,257
$ 103,071
Changes in allowance for loan losses for the nine months ended September 30, 2018:
Beginning balance $ 66,133
$ 25,754
$ 91,887
Provision for loan losses 13,387
7,499
20,886
Charge-offs (7,532 ) (6,746 ) (14,278 )
Recoveries 2,826
1,750
4,576
Ending balance $ 74,814
$ 28,257
$ 103,071
Changes in allowance for loan losses for the three months ended September 30, 2017:
Beginning balance $ 57,955
$ 25,842
$ 83,797
Provision for loan losses 664
4,256
4,920
Charge-offs (3,792 ) (1,650 ) (5,442 )
Recoveries 1,270
636
1,906
Ending balance $ 56,097
$ 29,084
$ 85,181
Changes in allowance for loan losses for the nine months ended September 30, 2017:
Beginning balance $ 51,201
$ 27,067
$ 78,268
Provision for loan losses 9,140
6,060
15,200
Charge-offs (7,209 ) (6,112 ) (13,321 )
Recoveries 2,965
2,069
5,034
Ending balance $ 56,097
$ 29,084
$ 85,181

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~The following schedule presents, by loan portfolio, the changes in the allowance for the acquired loan portfolio.~~

(Dollars in thousands) Commercial
Loan
Portfolio Consumer
Loan
Portfolio Total
Acquired Loan Portfolio
Changes in allowance for loan losses for the three months ended September 30, 2018:
Beginning balance $ —
$ —
$ —
Provision for loan losses 970
—
970
Charge-offs —
—
—
Recoveries —
—
—
Ending balance $ 970
$ —
$ 970
Changes in allowance for loan losses for the nine months ended September 30, 2018:
Beginning balance $ —
$ —
$ —
Provision for loan losses 970
—
970
Charge-offs —
—
—
Recoveries —
—
—
Ending balance $ 970
$ —
$ 970
Changes in allowance for loan losses for the three months ended September 30, 2017:
Beginning balance $ —
$ —
$ —
Provision for loan losses 409
170
579
Charge-offs —
—
—
Recoveries —
—
—
Ending balance $ 409
$ 170
$ 579
Changes in allowance for loan losses for the nine months ended September 30, 2017:
Beginning balance $ —
$ —
$ —
Provision for loan losses 409
170
579
Charge-offs —
—
—
Recoveries —
—
—
Ending balance $ 409
$ 170
$ 579

The following schedule presents by loan portfolio segment, details regarding the balance in the allowance and the recorded investment in loans at September 30, 2018 and December 31, 2017 by impairment evaluation method.

(Dollars in thousands) Commercial
Loan
Portfolio Consumer
Loan
Portfolio Total
Allowance for loan losses balance at September 30, 2018 attributable to:
Loans individually evaluated for impairment $ 3,556
$ 1,518
$ 5,074
Loans collectively evaluated for impairment 71,258
26,739
97,997
Loans acquired with deteriorated credit quality 970
—
970
Total $ 75,784
$ 28,257
$ 104,041
Recorded investment (loan balance) at September 30, 2018:
Loans individually evaluated for impairment $ 111,597
$ 27,853
$ 139,450
Loans collectively evaluated for impairment 6,650,763
4,355,229
11,005,992
Loans acquired with deteriorated credit quality 2,291,330
1,359,480
3,650,810
Total $ 9,053,690
$ 5,742,562
$ 14,796,252

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

(Dollars in thousands)
Commercial
Loan
Portfolio

Consumer
Loan
Portfolio
Total
Allowance for loan losses balance at December 31, 2017 attributable to:
Loans individually evaluated for impairment $ 5,537
$ 2,465
$ 8,002
Loans collectively evaluated for impairment 60,596
23,289
83,885
Loans acquired with deteriorated credit quality —
—
—
Total $ 66,133
$ 25,754
$ 91,887
Recorded investment (loan balance) at December 31, 2017:
Loans individually evaluated for impairment $ 83,797
$ 28,080
$ 111,877
Loans collectively evaluated for impairment 5,573,389
4,062,163
9,635,552
Loans acquired with deteriorated credit quality 2,803,341
1,604,497
4,407,838
Total $ 8,460,527
$ 5,694,740
$ 14,155,267

~~Note 5: Other Real Estate Owned and Repossessed Assets~~

~~Changes in other real estate owned and repossessed assets, included in interest receivable and other assets on the Consolidated Statements of Financial Position, were as follows:~~

(Dollars in thousands) Other real estate
owned Repossessed
assets
Balance at January 1, 2018 $ 8,182
$ 625
Transfers based on adoption of ASU 2014-09⁽¹⁾
(189 ) —
Additions ⁽²⁾
5,281
3,504
Net payments received (190 ) —
Disposals (5,859 ) (3,563 )
Write-downs (1,207 ) —
Balance at September 30, 2018 $ 6,018
$ 566

Balance at January 1, 2017 $ 16,812
$ 375
Additions ⁽²⁾
5,339
3,633
Net payments received (582 ) —
Disposals (10,180 ) (3,469 )
Write-downs (1,323 ) —
Balance at September 30, 2017 $ 10,066
$ 539

⁽¹⁾

In accordance with the updates to Topic 606 adopted by the Corporation effective January 1, 2018, $1.1 million of other real estate owned sold with seller financing were reclassified on the Consolidated Statements of Financial Position to loans and the related $0.9 million of deferred gains were recognized in income as an adjustment to opening retained earnings. Refer to Note 1, Basis of Presentation and Significant Accounting Policies for further information.


⁽²⁾	~~Includes loans transferred to other real estate owned and other repossessed assets.~~

At September 30, 2018, the Corporation had $1.5 million of other real estate owned and repossessed assets as a result of obtaining physical possession in accordance with ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. In addition, there were $5.4 million of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process as of September 30, 2018.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Income and expenses related to other real estate owned and repossessed assets, recorded as a component of "Other" operating expenses in the Consolidated Statements of Income, were as follows:~~

(Dollars in thousands)
Other real estate
owned

Repossessed
assets
For the three months ended September 30, 2018

Net gain (loss) on sale $ 224
$ (175 )
Write-downs (424 ) —
Net operating expenses (93 ) (2 )
Total $ (293 ) $ (177 )
For the nine months ended September 30, 2018
Net gain (loss) on sale $ 1,003
$ (269 )
Write-downs (1,207 ) —
Net operating expenses (808 ) (5 )
Total $ (1,012 ) $ (274 )
For the three months ended September 30, 2017

Net gain (loss) on sale $ 388
$ (112 )
Write-downs (550 ) —
Net operating expenses (509 ) (1 )
Total $ (671 ) $ (113 )
For the nine months ended September 30, 2017
Net gain (loss) on sale $ 2,203
$ (283 )
Write-downs (1,323 ) —
Net operating expenses (1,727 ) (8 )
Total $ (847 ) $ (291 )

~~Note 6: Goodwill~~

Goodwill was $1.13 billion at both September 30, 2018 and December 31, 2017. Goodwill recorded is primarily attributable to the synergies and economies of scale expected from combining the operations of the Corporation and acquired and merged organizations.

Goodwill is not amortized but is evaluated at least annually for impairment. The Corporation’s most recent annual goodwill impairment review performed as of October 31, 2017 did not indicate that an impairment of goodwill existed. The Corporation also determined that no triggering events have occurred that indicated impairment from the most recent valuation date through September 30, 2018 and that the Corporation's goodwill was not impaired at September 30, 2018.

~~Note 7: Loan Servicing Rights~~

Loan servicing rights ("LSRs") are created as a result of selling residential mortgage and commercial real estate loans in the secondary market while retaining the right to service these loans and receive servicing income over the life of the loan, and from acquisitions of other banks that had LSRs. Loans serviced for others are not reported as assets in the Consolidated Statements of Financial Position. The Corporation has elected to account for LSRs under the fair value measurement method.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

LSRs are established and recorded at the estimated fair value by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. The following table represents the activity for LSRs and the related fair value changes:

(Dollars in thousands)
Commercial
Real Estate
Mortgage Total
For the three months ended September 30, 2018
Fair value, beginning of period $ 457
$ 69,907
$ 70,364
Additions from loans sold with servicing retained 51
2,035
2,086
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off (28 ) (647 ) (675 )
Changes in estimates of fair value ⁽¹⁾
—
932
932
Fair value, end of period $ 480
$ 72,227
$ 72,707
For the nine months ended September 30, 2018
Fair value, beginning of period $ 427
$ 63,414
$ 63,841
Additions from loans sold with servicing retained 139
6,198
6,337
Changes in fair value due to: 0
0

Reductions from pay-offs, pay downs and run-off (86 ) (2,039 ) (2,125 )
Changes in estimates of fair value ⁽¹⁾
—
4,654
4,654
Fair value, end of period $ 480
$ 72,227
$ 72,707
Principal balance of loans serviced $ 42,070
$ 6,869,131
$ 6,911,201
For the three months ended September 30, 2017
Fair value, beginning of period $ 486
$ 64,036
$ 64,522
Additions from loans sold with servicing retained —
2,324
2,324
Changes in fair value due to: 0
Reductions from pay-offs, pay downs and run-off (31 ) (579 ) (610 )
Changes in estimates of fair value⁽¹⁾
—
(4,041 ) (4,041 )
Fair value, end of period $ 455
$ 61,740
$ 62,195
For the nine months ended September 30, 2017
Fair value, beginning of period $ 344
$ 47,741
$ 48,085
Transfers in based on new accounting policy election⁽²⁾
—
15,891
15,891
Additions from loans sold with servicing retained 188
6,273
6,461
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off (77 ) (1,803 ) (1,880 )
Change in estimates of fair value⁽¹⁾
—
(6,362 ) (6,362 )
Fair value, end of period $ 455
$ 61,740
$ 62,195
Principal balance of loans serviced $ 41,798
$ 7,102,485
$ 7,144,283


⁽¹⁾	Represents estimated LSR value change resulting primarily from market-driven changes in interest rates and prepayments. Included in "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.


⁽²⁾	The Corporation elected as of January 1, 2017 to account for all loan servicing rights previously accounted for at the lower of cost or fair value under the fair value measurement method. For further information on this election, refer to Note 1, Basis of Presentation and Significant Accounting Policies.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Expected and actual loan prepayment speeds are the most significant factors driving the fair value of loan servicing rights. The following table presents assumptions utilized in determining the fair value of loan servicing rights as of September 30, 2018 and December 31, 2017.

Mortgage
As of September 30, 2018
Prepayment speed 0.0 - 25.74%
Weighted average ("WA") discount rate 10.1 %
WA cost to service/per year $ 66
WA ancillary income/per year $ 31
WA float range 2.3 %
As of December 31, 2017
Prepayment speed 0.0 - 38.8%
WA discount rate 10.1 %
WA cost to service/per year $ 66
WA ancillary income/per year $ 31
WA float range 1.6 %

The Corporation realized total loan servicing fee income, included in "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income, of $4.3 million and $4.5 million for the three months ended September 30, 2018 and 2017, respectively and $13.2 million and $13.6 million for the nine months ended September 30, 2018 and 2017, respectively.

~~Note 8:~~10. Other Intangible Assets

~~The following table shows the net carrying value of the Corporation’s other intangible assets.~~

(Dollars in thousands) September 30,
2018 December 31,
2017
Core deposit intangible assets $ 29,981
$ 34,259
Non-compete intangible assets —
12
Total other intangible assets $ 29,981
$ 34,271

~~Core Deposit Intangible Assets~~

The Corporation recorded core deposit intangible assets associated with each of its acquisitions and its merger with Talmer. Core deposit intangible assets are amortized on an accelerated basis over their estimated useful lives and have an estimated remaining weighted-average useful life of 6.8 years as of September 30, 2018.

The following table sets forth the carrying amount and accumulated amortization of ~~core deposit~~ intangible assets that are amortizable and arose from business combinations or other ~~acquisitions:~~acquisitions.



(In thousands)	Core deposit intangibles			Program agreements			Non-compete agreements			Customer relationships			Total
At September 30, 2019
Gross carrying value	$	180,837		$	14,700		$	9,250		$	24,380		$	229,167
Accumulated amortization	(6,372		)	(868		)	(5,334		)	(683		)	(13,257		)
Net carrying amount	$	174,465		$	13,832		$	3,916		$	23,697		$	215,910
At December 31, 2018
Gross carrying value	$	3,049		$	14,700		$	9,250		$	2,000		$	28,999
Accumulated amortization	(2,502		)	(408		)	(3,643		)	(1,950		)	(8,503		)
Net carrying amount	$	547		$	14,292		$	5,607		$	50		$	20,496

(Dollars in thousands) September 30,
2018 December 31,
2017
Gross original amount $ 56,456
$ 59,143
Accumulated amortization 26,475
24,884
Net carrying amount $ 29,981

$ 34,259

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Amortization expense recognized on ~~core deposit~~ intangible assets was ~~$1.4~~$4.5 million and ~~$1.5~~$6.2 million for the three and nine months ended September 30, ~~2018 and 2017,~~2019, respectively, and ~~$4.3~~$0.9 million and ~~$4.5~~$2.6 million for the same periods in 2018.

Estimated amortization expense for the remainder of 2019 through 2023 is as follows:



(In thousands)	Total
Remainder of 2019	$	9,509
2020	27,393
2021	24,892
2022	22,531
2023	20,762

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Note 11. Loan Servicing Rights

Information regarding LSRs was as follows:



(Dollars in thousands)	At or For the Three Months Ended September 30, 2019			At or For the Nine Months Ended September 30, 2019
Balance, beginning of period	$	18		$	23
Acquired in the Merger	59,567			59,567
New servicing assets created	1,906			1,906
Impairment (charge) recovery	(4,520		)	(4,520		)
Amortization	(1,670		)	(1,675		)
Balance, end of period	$	55,301		$	55,301
Valuation allowance, end of period	$	(4,520	)	$	(4,520	)
Loans serviced for others that have servicing rights capitalized, end of period	$	6,647,153		$	6,647,153

LSRs are stratified into relatively homogeneous pools based on products with similar characteristics.

Total loan servicing, late fee and other ancillary fee income, included in servicing fee income, related to loans serviced for others that have servicing rights capitalized was $2.8 million for both the three and nine months ended September 30, 2019.

Note 12. Operating Lease Right-of-Use Assets and Liabilities

Operating lease right-of-use assets, included in other assets, were $114.2 million at September 30, 2019. Operating lease liabilities, included in accrued expenses and other liabilities, were $135.1 million at September 30, 2019. In connection with the Merger, TCF recorded $39.8 million and $41.6 million of operating lease right-of-use assets and operating lease liabilities, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at September 30, 2019 were as follows:



(In thousands)
Remainder of 2019	$	9,137
2020	32,687
2021	23,902
2022	18,624
2023	15,807
Thereafter	48,737
Total undiscounted future minimum operating lease payments	148,894
Discount	(13,751		)
Total operating lease liabilities	$	135,143

As of September 30, 2019, TCF had approximately $250.1 million in additional leases for real property that have not yet commenced and are excluded from the operating lease liability table above. Of this amount, $231.7 million was related to a lease agreement for TCF Financial's new headquarters building in Detroit, Michigan signed on May 31, 2019 by Legacy Chemical, with an organization 50% owned by indirect related parties. The new headquarter lease has a term of 22.5 years commencing January 1, 2022 with renewal options.

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



	At September 30, 2019
Weighted-average discount rate	2.66	%
Weighted-average remaining lease term (years)	6.6

Table of Contents

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



	Three Months Ended			Nine Months Ended
(In thousands)	September 30, 2019
Lease expense	$	10,367		$	28,488
Short-term and variable lease cost	241			332
Sublease income	(447		)	(1,189		)
Total lease cost for operating leases	$	10,161		$	27,631

Supplemental cash flow information related to operating leases was as follows:



	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2019
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	395	$	118,100
Cash paid for amounts included in the measurement of lease liabilities - operating	8,807		23,841

Note 13. Investments in Qualified Affordable Housing Projects, Federal Historical Projects and New Market Tax Credits

TCF invests in qualified affordable housing projects, federal historical projects, and new market tax credits for the purposes of community reinvestment and to obtain tax credits. Return on TCF's investment in these projects comes in the form of pass through tax credits and tax losses. The carrying value of the investments is included in other assets. TCF primarily utilizes the proportional amortization method to account for investments in qualified affordable housing projects and the equity method to account for investments in other tax credit projects.

Under the proportional amortization method, TCF amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits. TCF recognized amortization expense of investments in qualified affordable housing projects of $3.6 million and $8.5 million for the three and nine months ended September 30, 2019, respectively, and $2.4 million and $7.2 million for the three and nine months ended September 30, 2018, respectively. Amortization expense was offset by tax credits and ~~2017, respectively.~~

~~The estimated future amortization expense on core deposit intangible assets~~other benefits of $4.5 million and $10.5 million for ~~periods ending after~~the three and nine months ended September 30, 2019, respectively, and $2.9 million and $8.5 million for the three and nine months ended September 30, 2018, respectively. TCF's remaining investment in qualified affordable housing projects totaled $231.4 million at September 30, 2019 and $90.9 million at December 31, 2018.

Under the equity method, TCF's share of the earnings or losses is included in other noninterest expense. TCF's remaining investment in federal historical projects, all of which were acquired in the Merger, totaled $38.5 million at September 30, 2019.

TCF's unfunded equity contributions relating to investments in qualified affordable housing projects, federal historical projects and new market tax credits are included in other liabilities. TCF's remaining unfunded equity contributions totaled $128.1 million at September 30, 2019 and $56.2 million at December 31, 2018.

Management analyzes these investments for potential impairment when events or changes in circumstances indicate that it is more-likely-than-not that the carrying amount of the investment will not be realized. An impairment loss is measured as the amount by which the carrying amount of an investment exceeds its fair value.

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

Table of Contents

Note 14. Deposits

Deposits were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Checking:
Noninterest-bearing	$	7,959,455	$	3,921,710
Interest-bearing	6,260,136		2,452,954
Total checking	14,219,591		6,374,664
Savings	8,362,170		6,122,257
Money market	3,621,729		1,193,782
Certificates of deposit	6,949,082		3,797,241
Brokered deposits	2,133,502		1,415,742
Total deposits	$	35,286,074	$	18,903,686

Excluded from total deposits are account overdrafts which have been classified as loans. At September 30, 2019 and December 31, 2018, ~~— $1.4 million;~~overdrafts totaled $18.4 million and $9.6 million, respectively.

Scheduled maturities for certificates of deposits, including Certificate of Deposit Account Registry Service ("CDARS") deposits, IRA deposits and other brokered funds at September 30, 2019 ~~— $5.4 million; 2020 — $4.9 million; 2021 — $4.5 million; 2022 — $4.2 million; 2023~~were as follows:



(In thousands)
Remainder of 2019	$	4,813,249
2020	3,138,314
2021	266,425
2022	97,139
2023	40,823
Thereafter	30,022

The aggregate amount of certificates of deposit with balances equal to or greater than the Federal Deposit Insurance Corporation ("FDIC") insurance limit of $250,000 was $3.0 billion at September 30, 2019 and ~~thereafter — $9.6 million.~~$782.4 million at December 31, 2018.

Note 15. Borrowings

TCF Bank is a member of the FHLB, which provides short- and long-term funding collateralized by mortgage related assets to its members.

Collateralized Deposits include TCF Bank's Repurchase Investment Sweep Agreement product collateralized by mortgage-backed securities, and funds deposited by customers that are collateralized by investment securities owned by TCF Bank, as these deposits are not covered by FDIC insurance.

Short-term borrowings (borrowings with an original maturity of less than one year) were as follows:



	At September 30, 2019				At December 31, 2018
(Dollars in thousands)	Amount		Weighted-average Rate		Amount		Weighted-average Rate
FHLB advances	$	2,335,960	1.63	%	$	—	—	%
Collateralized Deposits	271,340		1.00		—		—
Total short-term borrowings	$	2,607,300	1.56		$	—	—

On August 5, 2019, TCF Financial entered into a $50.0 million unsecured 364-day revolving credit facility bearing interest at the then applicable Eurocurrency Rate plus 150 basis points, available to be used, as needed, to fund growth, common stock repurchases or other general corporate purposes. The revolving credit facility contains covenants related to certain thresholds that must be maintained related to various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on levels of indebtedness. TCF Financial had no outstanding balance under the revolving credit facility and was in compliance with all covenants at September 30, 2019.

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Long-term borrowings were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
FHLB advances	$	322,674	$	1,100,000
Subordinated debt obligations	430,178		253,391
Discounted lease rentals	104,571		92,976
Capital lease obligation	3,059		3,105
Total long-term borrowings	$	860,482	$	1,449,472

FHLB Advances As a result of the Merger, TCF assumed long-term FHLB advances of $322.7 million. These acquired long-term FHLB advances have maturity dates ranging from 2020 to 2025 and carried interest rates ranging from of 1.30% to 2.72% at September 30, 2019. FHLB advances are collateralized by residential mortgage and commercial real estate loans.

Subordinated Debt Obligations As a result of the Merger, TCF assumed subordinated debt securities totaling $19.0 million. Included in the obligations assumed in the Merger were $5.6 million of obligations due in 2032 with a carrying interest rate based on the three-month LIBOR plus 3.25% and $13.4 million of obligations due in 2034 and 2035 with carrying interest rates based on the three-month LIBOR plus 1.45% to 2.85%.

On July 2, 2019, TCF Bank issued $150.0 million of fixed-to-floating rate subordinated notes (the "2029 Notes") at par. The fixed-to-floating rate subordinated notes, due July 2, 2029, bear an initial interest rate of 4.13% per annum, payable semi-annually in arrears on January 2 and July 2, commencing on January 2, 2020. The 2029 Notes are redeemable at TCF Bank's option beginning on July 2, 2024. Effective July 2, 2024, 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 $1.5 million that are amortized as interest expense over the full term of the 2029 Notes using the effective interest method.

The contractual maturities of long-term borrowings at September 30, 2019 were as follows:



(In thousands)
Remainder of 2019	$	11,138
2020	150,274
2021	29,508
2022	126,721
2023	5,960
Thereafter	536,881
Total long-term borrowings	$	860,482

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Note 9:16. Accumulated Other Comprehensive Income

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:



	Three Months Ended September 30,
	2019									2018
(In thousands)	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips:
Net unrealized gains (losses) arising during the period	$	24,236		$	(5,606	)	$	18,630		$	(18,086	)	$	4,516		$	(13,570	)
Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
Total interest income	844			(205		)	639			263			(65		)	198
Net gains (losses) on investment securities	—			—			—			—			—			—
Other noninterest expense	(53		)	14			(39		)	(84		)	22			(62		)
Amounts reclassified from accumulated other comprehensive income (loss)	791			(191		)	600			179			(43		)	136
Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips	25,027			(5,797		)	19,230			(17,907		)	4,473			(13,434		)
Recognized postretirement prior service cost:
Reclassification of amortization of prior service cost to other noninterest expense	(12		)	3			(9		)	(12		)	3			(9		)
Foreign currency translation adjustment⁽¹⁾	(1,968		)	—			(1,968		)	2,899			—			2,899
Net unrealized gains (losses) on net investment hedges	2,170			(529		)	$	1,641		(2,537		)	633			(1,904		)
Total other comprehensive income (loss)	$	25,217		$	(6,323	)	$	18,894		$	(17,557	)	$	5,109		$	(12,448	)

	Nine Months Ended September 30,
	2019									2018
(In thousands)	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips:
Net unrealized gains (losses) arising during the period	$	114,263		$	(27,519	)	$	86,744		$	(62,521	)	$	15,688		$	(46,833	)
Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
Total interest income	2,495			(607		)	1,888			810			(202		)	608
Net gains (losses) on investment securities	(1,513		)	368			(1,145		)	—			—			—
Other noninterest expense	(350		)	86			(264		)	221			(55		)	166
Amounts reclassified from accumulated other comprehensive income (loss)	632			(153		)	479			1,031			(257		)	774
Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips	114,895			(27,672		)	87,223			(61,490		)	15,431			(46,059		)
Recognized postretirement prior service cost:
Reclassification of amortization of prior service cost to other noninterest expense	(35		)	10			(25		)	(35		)	9			(26		)
Foreign currency translation adjustment⁽¹⁾	5,014			—			5,014			(4,136		)	—			(4,136		)
Net unrealized gains (losses) on net investment hedges	(3,761		)	915			(2,846		)	4,637			(1,158		)	3,479
Total other comprehensive income (loss)	$	116,113		$	(26,747	)	$	89,366		$	(61,024	)	$	14,282		$	(46,742	)


(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 Available-for-Sale Investment Securities 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 Three Months Ended September 30, 2019
Balance, beginning of period	$	39,971		$	10,499		$	(13,229	)	$	93		$	37,334
Other comprehensive income (loss)	18,630			1,641			(1,968		)	—			18,303
Amounts reclassified from accumulated other comprehensive income (loss)	600			—			—			(9		)	591
Net other comprehensive income (loss)	19,230			1,641			(1,968		)	(9		)	18,894
Balance, end of period	$	59,201		$	12,140		$	(15,197	)	$	84		$	56,228
At or For the Three Months Ended September 30, 2018
Balance, beginning of period	$	(48,978	)	$	9,919		$	(13,878	)	$	126		$	(52,811	)
Other comprehensive income (loss)	(13,570		)	(1,904		)	2,899			—			(12,575		)
Amounts reclassified from accumulated other comprehensive income (loss)	136			—			—			(9		)	127
Net other comprehensive income (loss)	(13,434		)	(1,904		)	2,899			(9		)	(12,448		)
Balance, end of period	$	(62,412	)	$	8,015		$	(10,979	)	$	117		$	(65,259	)
At or For the Nine Months Ended September 30, 2019
Balance, beginning of period	$	(28,022	)	$	14,986		$	(20,211	)	$	109		$	(33,138	)
Other comprehensive income (loss)	86,744			(2,846		)	5,014			—			88,912
Amounts reclassified from accumulated other comprehensive income (loss)	479			—			—			(25		)	454
Net other comprehensive income (loss)	87,223			(2,846		)	5,014			(25		)	89,366
Balance, end of period	$	59,201		$	12,140		$	(15,197	)	$	84		$	56,228
At or For the Nine Months Ended September 30, 2018
Balance, beginning of period	$	(16,353	)	$	4,536		$	(6,843	)	$	143		$	(18,517	)
Other comprehensive income (loss)	(46,833		)	3,479			(4,136		)	—			(47,490		)
Amounts reclassified from accumulated other comprehensive income (loss)	774			—			—			(26		)	748
Net other comprehensive income (loss)	(46,059		)	3,479			(4,136		)	(26		)	(46,742		)
Balance, end of period	$	(62,412	)	$	8,015		$	(10,979	)	$	117		$	(65,259	)

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Note 17. 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 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 $296.6 million at September 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 September 30,			At December 31,			At September 30,			At December 31,			Well-capitalized Standard under Prompt Corrective Action Provisions		Minimum Capital Requirement for Capital Adequacy Plus Conservation Buffer
(Dollars in thousands)	2019			2018			2019			2018
Regulatory Capital:
Common equity Tier 1 capital	$	4,009,214		$	2,224,183		$	3,991,895		$	2,282,013
Tier 1 capital	4,197,706			2,408,393			4,015,208			2,300,472
Total capital	4,652,708			2,750,581			4,487,968			2,675,347

Regulatory Capital Ratios:
Common equity Tier 1 capital ratio	10.88		%	10.82		%	10.85		%	11.10		%	6.50	%	7.00	%
Tier 1 risk-based capital ratio	11.40			11.72			10.91			11.19			8.00		8.50
Total risk-based capital ratio	12.63			13.38			12.20			13.01			10.00		10.50
Tier 1 leverage ratio	11.16			10.44			10.68			9.97			5.00		4.00

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Note 18. Derivative Instruments

Derivatives Designated as Hedging Instruments TCF entered into an interest rate contract (interest rate swap agreement) in February 2015 related to its contemporaneously issued subordinated debt, which settles through a central clearing house. The swap was designated as a fair value hedge and ~~Balance Sheet Offsetting~~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 through February 27, 2025, the maturity date of the subordinated debt.

The interest rate swap substantially offsets the change in fair value of the hedged underlying subordinated debt that is attributable to the changes in market risk. The gains and losses related to changes in the fair value of the interest rate swap, as well as the offsetting changes in fair value of the hedged debt, are recorded in interest expense.

Forward foreign exchange contracts, which generally settle within 34 days, are used to manage the foreign exchange risk associated with TCF'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. Changes in net investment hedges recorded within other comprehensive income (loss) are subsequently reclassified to noninterest expense during the period in which the foreign investment is substantially liquidated or when other elements of the currency translation adjustment are reclassified to income.

Derivatives Not Designated as Hedges TCF executes interest rate contracts with commercial banking customers to facilitate their respective risk management strategies. Those interest rate contracts are simultaneously hedged with offsetting interest rate contracts that TCF executes with a third party and generally settles through a central clearing house, minimizing TCF's net risk exposure. As the interest rate contracts do not meet hedge accounting requirements, changes in the fair value of both the customer contracts and the offsetting contracts are recorded in other noninterest income. These contracts have original fixed maturity dates ranging from 27 days to 16 years.

TCF executes 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. Changes in the fair value of these forward foreign exchange contracts are recorded in other noninterest expense.

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

Residential mortgage loan commitments, forward loan sales commitments, are generally entered into at the time interest rate locks are accepted to protect the value of the mortgage loans from increases in market interest rates during the period held and are generally settled with the investor in the secondary market within 90 days after entering into the forward commitment. Certain forward loan commitments are accounted for as derivatives and recorded at fair value, with changes in fair value recorded through earnings. In the normal course of business, TCF may decide to settle a forward contract rather than fulfill the ~~Corporation enters into various transactions involving derivative instruments to manage exposure to fluctuations~~contract. Cash received or paid in ~~interest rates~~this settlement manner is recorded in net (losses) gains on sales of loans and to meet the financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements of market and credit risk. Market and credit risk are includedleases in the ~~determination~~Consolidated Statements of ~~fair value.~~Income and is considered a cost of executing a forward contract.

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Corporation’s practice to enter into forward commitments for the future delivery of mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans.

The Corporation enters into interest rate derivatives to provide a service to certain qualifying customers to help facilitate their respective risk management strategies. These customer-initiated derivatives are not used for interest rate risk management purposes and primarily consist of interest rate swaps, interest rate caps and floors and foreign exchange contracts. The Corporation generally takes offsetting positions with dealer counterparts to mitigate the inherent risk. Income primarily results from the spread between the customer derivative and the offsetting dealer positions. Gains and losses on customer-related derivatives are included in other noninterest income.

The Corporation utilizes interest rate swaps designated as cash flow hedges for risk management purposes to manage exposure that arises from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. These interest rate swaps designated as cash flow hedges are used to manage differences in the amount, timing and duration of the Corporation's known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. The Corporation assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative instruments with the changes in cash flows of the designated hedged transactions. The changes in fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. For the Corporation's derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings in the same line item as the offsetting loss or gain on the related interest rate swap. The Corporation expects the hedges to remain highly effective during the remaining terms of the swaps.

~~The Corporation additionally has written and purchased option derivatives consisting of instruments to facilitate an equity-linked time deposit product (the "Power Equity CD"). The~~ Power Equity ~~CD is a~~CDs are time ~~deposit~~deposits that ~~provides~~provide the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while ~~the Corporation~~TCF receives a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments which are carried at fair ~~value on~~value. Power Equity CDs include written and purchased option derivatives consisting of instruments to facilitate an equity-linked time deposit product.

TCF's swap agreement is related to the ~~Consolidated Statements~~sale of ~~Financial Position.~~

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

TCF's Visa Class B stock. The ~~following table presents the notional amount and~~ fair value of the ~~Corporation’s derivative~~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. Changes, if any, in the valuation of this swap agreement, which has no determinable maturity date, are recorded in other noninterest expense.

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Derivative instruments, ~~held~~recognized at fair value within other assets or ~~issued in connection with customer-initiated and mortgage banking activities.~~ other liabilities were as follows:

September 30, 2018 December 31, 2017
Fair Value Fair Value
(Dollars in thousands)
Notional
Amount (1)

Gross
Derivative
Assets (2)

Gross
Derivative
Liabilities
(2)

Notional
Amount (1)

Gross
Derivative
Assets (2)

Gross
Derivative
Liabilities
(2)
Risk management purposes:
Derivatives designated as hedging instruments:
Interest rate swaps $ 820,000
$ 21,067
$ —
$ 620,000
$ 5,899
$ —
Total risk management purposes 820,000
21,067
—
620,000
5,899
—
Customer-initiated and mortgage banking derivatives:

Customer-initiated derivatives 1,960,013
21,390
21,703
1,365,119
9,376
10,139
Foreign exchange forwards 934
3
3
—
—
—
Forward contracts related to mortgage loans to be delivered for sale 169,554
760
—
115,996
—
34
Interest rate lock commitments 98,516
1,081
—
71,003
1,222
—
Power Equity CD 37,501
1,260
1,260
38,807
2,184
2,184
Total customer-initiated and mortgage banking derivatives 2,266,518
24,494
22,966
1,590,925
12,782
12,357
Total gross derivatives $ 3,086,518
$ 45,561
$ 22,966
$ 2,210,925
$ 18,681
$ 12,357



	At September 30, 2019
			Fair Value
(In thousands)	Notional Amount⁽¹⁾		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments
Interest rate contract	$	150,000	$	—		$	11
Forward foreign exchange contracts	171,075		1,252			—
Total derivatives designated as hedging instruments	$	321,075	$	1,252		$	11
Derivatives not designated as hedging instruments
Interest rate contracts	$	4,694,964	$	130,391		$	101,899
Forward foreign exchange contracts	291,999		414			315
Interest rate lock commitments	266,949		4,554			113
Forward loan sales commitments	218,061		166			253
Power Equity CDs	31,870		617			617
Swap agreement	12,644		—			356
Total derivatives not designated as hedging instruments	$	5,516,487	$	136,142		$	103,553
Total derivatives before netting	$	5,837,562	137,394			103,564
Netting⁽²⁾			(2,152		)	(93,785		)
Total derivatives, net			$	135,242		$	9,779



	At December 31, 2018
			Fair Value
(In thousands)	Notional Amount⁽¹⁾		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments
Interest rate contract	$	150,000	$	393		$	—
Forward foreign exchange contracts	157,271		2,980			—
Total derivatives designated as hedging instruments	$	307,271	$	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
Swap agreement	13,020		—			583
Total derivatives not designated as hedging instruments	$	1,390,750	$	11,877		$	4,356
Total derivatives before netting			15,250			4,356
Netting⁽²⁾			(6,982		)	(991		)
Total derivatives, net			$	8,268		$	3,365


⁽¹⁾	Notional or contract amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the Consolidated Statements of Financial ~~Position.~~Condition.


⁽²⁾	~~Derivative assets~~Includes netting of derivative asset and liability balances and related cash collateral, where counterparty netting agreements are ~~included within "Interest receivable and other assets" and derivative liabilities are included within "Interest payable and other liabilities"~~in place.

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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 September 30, 2019
(In thousands)	Gross Amounts Recognized		Gross Amounts Offset⁽¹⁾			Net Amount Presented
Derivative assets
Interest rate contracts	$	130,391	$	(312	)	$	130,079
Forward foreign exchange contracts	1,666		(1,666		)	—
Interest rate lock commitments	4,554		(8		)	4,546
Forward loan sales commitments	166		(166		)	—
Power Equity CDs	617		—			617
Total derivative assets	$	137,394	$	(2,152	)	$	135,242
Derivative liabilities
Interest rate contracts	$	101,910	$	(93,099	)	$	8,811
Forward foreign exchange contracts	315		(156		)	159
Interest rate lock commitments	113		(8		)	105
Forward loan sales commitments	253		(166		)	87
Power Equity CDs	617		—			617
Other contracts	356		(356		)	—
Total derivative liabilities	$	103,564	$	(93,785	)	$	9,779



	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
Swap agreement	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 Position. Included in the fair value of the derivative assets are credit valuation adjustments for counterparty credit risk totaling $272 thousand at September 30, 2018 and $809 thousand at December 31, 2017.Condition.

InDerivatives Designated as Hedging Instruments

Interest rate contract The carrying amount of the ~~normal course~~hedged subordinated debt, including the cumulative basis adjustment related to the application of ~~business, the Corporation may decide to settle a forward contract rather than fulfill the contract. Cash received or paid~~fair value hedge accounting, is recorded in ~~this settlement manner is included in "Net gain~~long-term borrowings on ~~sale of loans and other mortgage banking revenue" in~~ the Consolidated Statements of ~~Income~~Financial Condition and ~~is considered a cost~~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 September 30, 2019		At December 31, 2018		At September 30, 2019		At December 31, 2018
Subordinated bank note - 2025	$	153,307	$	144,296	$	4,682	$	(4,165	)

Table of ~~executing a forward contract.~~Contents

The following table ~~presents~~summarizes the ~~net gains (losses) related to derivative instruments reflecting the changes in~~effect of fair ~~value.~~

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) Location of Gain (Loss) 2018 2017 2018 2017
Forward contracts related to mortgage loans to be delivered for sale Net gain on sale of loans and other mortgage banking revenue $ 1,185
$ 43
$ 794
$ 25
Interest rate lock commitments Net gain on sale of loans and other mortgage banking revenue (904 ) (198 ) (141 ) 843
Foreign exchange forwards Other noninterest income —
5
—
5
Customer-initiated derivatives Other noninterest income 84
(39 ) 450
(820 )
Total gain (loss) recognized in income $ 365
$ (189 ) $ 1,103
$ 53

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~The following table presents the net gains (losses) recorded in accumulated other comprehensive income and~~value hedge accounting on the Consolidated Statements of Income ~~relating to interest rate swaps designated as cash flow hedges~~ for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Statement of income line where the gain (loss) on the fair value hedge was recorded:
Interest expense on borrowings	$	17,115		$	10,726		$	48,050		$	31,850
Gain (loss) on interest rate contract (fair value hedge)
Hedged item	$	(2,100	)	$	1,206		$	(8,847	)	$	6,337
Derivative designated as a hedging instrument	2,195			(1,165		)	8,938			(6,621		)
Net income (expense) recognized on fair value hedge in interest expense on borrowings	$	95		$	41		$	91		$	(284	)

(Dollars in thousands) Amount of gain (loss) recognized in other comprehensive income Amount of gain (loss) reclassified from other comprehensive income to interest income or expense
Three Months Ended September 30, 2018
Interest rate swaps designated as cash flow hedges $ 4,111
$ 662
Three Months Ended September 30, 2017
Interest rate swaps designated as cash flow hedges 751
(575 )
Nine Months Ended September 30, 2018
Interest rate swaps designated as cash flow hedges $ 16,176
$ 1,009
Nine months ended September 30, 2017
Interest rate swaps designated as cash flow hedges 694
(984 )

Forward foreign exchange contracts The effect of net investment hedges on accumulated other comprehensive income was as follows:

~~At September 30, 2018, the Corporation expected $5.1 million of unrealized gains to be reclassified~~



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2019		2018			2019			2018
Forward foreign exchange contracts	$	2,170	$	(2,537	)	$	(3,761	)	$	4,637

Derivatives Not Designated as ~~an increase to~~Hedging Instruments Certain other interest ~~expense during the following twelve months.~~

~~Methods and assumptions used by the Corporation in estimating the fair value of its~~rate contracts, forward foreign exchange contracts, interest rate lock commitments, Power Equity CDs and ~~customer-initiated~~other contracts have not been designated as hedging instruments. The effect of these derivatives ~~are discussed in~~ ~~Note 2: Fair Value Measurements.~~

~~Balance Sheet Offsetting~~

~~Certain financial instruments, including customer-initiated derivatives and interest rate swaps, may be eligible for offset in~~on the Consolidated Statements of Financial Position and/or subject to master netting arrangements or similar agreements. The Corporation is party to master netting arrangements with its financial institution counterparties; however, the Corporation does not offset assets and liabilities under these arrangements for financial statement presentation purposes based on an accounting policy election. The tables below present information about the Corporation’s financial instruments that are eligible for offset.Income was as follows:



		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	Location of Gain (Loss)	2019			2018			2019			2018
Interest rate contracts⁽¹⁾	Other noninterest income	$	(19,764	)	$	51		$	(21,307	)	$	157
Forward foreign exchange contracts	Other noninterest expense	3,307			(3,706		)	(5,302		)	8,050
Interest rate lock commitments	Net (losses) gains on sales of loans and leases	337			(244		)	1,117			798
Forward loan sales commitments	Net (losses) gains on sales of loans and leases	(11		)	—			(11		)	—
Swap agreement	Other noninterest income	4			(292		)	4			(274		)
Net gain (loss) recognized		$	(16,127	)	$	(4,191	)	$	(25,499	)	$	8,731

Gross amounts not offset in the
statements of financial position
(Dollars in thousands) Gross
amounts
recognized Gross amounts
offset in the
statements of
financial condition Net amounts
presented in the
statements of
financial position Financial
instruments Collateral
(received)/posted Net
Amount
September 30, 2018

Offsetting derivative assets

Derivative assets ⁽¹⁾
$ 21,376
$ —
$ 21,376
$ —
$ (26,520 ) $ (5,144 )
Offsetting derivative liabilities

Derivative liabilities ⁽¹⁾
21,648
—
21,648
—
5,150
16,498
December 31, 2017

Offsetting derivative assets

Derivative assets ⁽¹⁾
$ 15,228
$ —
$ 15,228
$ —
$ —
$ 15,228
Offsetting derivative liabilities

Derivative liabilities 10,139
—
10,139
—
1,081
9,058


⁽¹⁾	~~Amount does not include participated~~Included in both the three and nine months ended September 30, 2019 is a loss of $17.3 million related to the termination of $1.1 billion of interest rate ~~swaps, forward contracts, interest rate lock commitments and power equity CDs as these instruments are not subject to master netting or similar arrangements.~~swaps.

At September 30, 2019 and December 31, 2018, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $30.2 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 September 30, 2019 and December 31, 2018, respectively. There were 0 forward foreign exchange contracts containing credit risk-related features in a liability position at both September 30, 2019 and December 31, 2018.

At September 30, 2019, TCF had posted $58.1 million and $0.1 million of cash collateral related to its interest rate contracts and forward foreign exchange contracts, respectively, and received $1.9 million of cash collateral related to its forward foreign exchange contracts.

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~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Note ~~10:~~ ~~Investments~~19. Fair Value Measurements

TCF uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair values are based on the price that would be received upon the sale of an asset or paid to transfer a liability in ~~Qualified Affordable Housing Projects, Federal Historic Projects~~an orderly transaction between market participants at the measurement date. Investment securities carried at fair value, certain loans held for sale, interest-only strips, derivative instruments, forward loan sales commitments and ~~New Market Tax Credits~~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 investment securities held to maturity, loans and leases, goodwill, loan servicing rights, 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.

~~The Corporation invests~~TCF groups its assets and liabilities measured at fair value in ~~qualified affordable housing projects, federal historic projects, and new market projects for the purpose of community reinvestment and obtaining tax credits. Return~~three levels, based on the ~~Corporation's~~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	Valuations that are based on prices obtained from independent pricing sources for the same instruments traded in active markets.


Level 2	Valuations that are based on prices obtained from independent pricing sources that are based on observable transactions of similar instruments, but not quoted markets.


Level 3	Valuations generated from Corporation model-based techniques that use at least one significant unobservable inputs. Such unobservable inputs reflect estimates of assumptions that market participants would use in pricing the asset or liability.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Investment Securities Carried at Fair Value: The fair value of investment ~~in these projects comes~~securities carried at fair value, 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:TCF has elected the fair value option for residential mortgage loans held-for-sale. Accordingly, the fair values of residential mortgage loans held-for-sale are based on valuation models that use the market price for similar loans sold in the ~~form~~secondary market. As these prices are derived from market observable inputs, TCF categorized as Level 2.

Interest-only Strips: The fair value of interest-only strips, categorized as Level 3, represents the ~~tax credits~~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 ~~tax losses that pass through~~discounted cash flow models, to arrive at the ~~Corporation.~~fair value of its interest-only strips. The ~~carrying~~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.

Derivative Instruments:

Interest Rate Contracts: TCF executes interest rate contracts as described in Note 18. 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, option volatilities and credit valuation adjustments related to counterparty and/or borrower non-performance risk.

Forward Foreign Exchange Contracts: TCF's forward foreign exchange contracts 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.

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Interest Rate Lock Commitments:TCF's interest rate lock commitments are derivative instruments that are recorded at fair value based on valuation models that use the market price for similar loans sold in the secondary market. The interest rate lock commitments are adjusted for expectations of exercise and funding. As the prices are derived from market observable inputs, TCF categorized as Level 2.

Power Equity CDs: Power Equity CDs are categorized as Level 2, and determined using quoted prices of underlying stocks, along with other terms and features of the derivate instruments.

Swap Agreement: 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 mortgage loans which are recorded at fair value based on valuation models. TCF’s expectation of the amount of its interest rate lock commitments that will ultimately close is a factor in determining the position. The valuation models utilize the fair value of related mortgage loans determined using observable market data and therefore categorized as Level 2.

Assets and Liabilities Held in Trust for Deferred Compensation Plans: Assets held in trust for deferred compensation plans include investments ~~is reflected~~ in ~~"Interest receivable~~publicly traded securities, excluding TCF Financial common stock reported in treasury stock and other ~~assets"~~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.

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



	September 30, 2019
(In thousands)	Level 1		Level 2		Level 3		Total
Assets
Investment securities carried at fair value	$	—	$	5,579,407	$	428	$	5,579,835
Loans held-for-sale	—		114,831		—		114,831
Interest-only strips	—		—		14,078		14,078
Derivative assets:⁽¹⁾
Interest rate contracts	—		130,391		—		130,391
Forward foreign exchange contracts	—		1,666		—		1,666
Interest rate lock commitments	—		4,554		—		4,554
Forward loan sales commitments	—		166		—		166
Power Equity CDs	—		617		—		617
Total derivative assets	—		137,394		—		137,394
Forward loan sales commitments	—		404		—		404
Assets held in trust for deferred compensation plans	40,784		—		—		40,784
Total assets at fair value	$	40,784	$	5,832,036	$	14,506	$	5,887,326
Liabilities
Derivative liabilities:⁽¹⁾
Interest rate contracts	$	—	$	101,910	$	—	$	101,910
Forward foreign exchange contracts	—		315		—		315
Interest rate lock commitments	—		113		—		113
Forward loan sales commitments	—		253		—		253
Power Equity CDs	—		617		—		617
Swap agreement	—		—		356		356
Total derivative liabilities	—		103,208		356		103,564
Forward loan sales commitments	—		284		—		284
Liabilities held in trust for deferred compensation plans	40,784		—		—		40,784
Total liabilities at fair value	$	40,784	$	103,492	$	356	$	144,632


(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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	December 31, 2018
(In thousands)	Level 1		Level 2		Level 3		Total
Assets
Investment securities carried at fair value	$	—	$	2,470,061	$	4	$	2,470,065
Loans held-for-sale	—		—		18,070		18,070
Interest-only strips	—		—		16,835		16,835
Derivative assets:⁽¹⁾
Interest rate contracts	—		7,909		—		7,909
Forward foreign exchange contracts	—		6,689		—		6,689
Interest rate lock commitments	—		—		652		652
Total derivative assets	—		14,598		652		15,250
Forward loan sales commitments	—		—		152		152
Assets held in trust for deferred compensation plans	33,217		—		—		33,217
Total assets at fair value	$	33,217	$	2,484,659	$	35,713	$	2,553,589
Liabilities
Derivative liabilities:⁽¹⁾
Interest rate contracts	$	—	$	3,732	$	—	$	3,732
Forward foreign exchange contracts	—		13		—		13
Interest rate lock commitments	—		—		28		28
Swap agreement	—		—		583		583
Total derivative liabilities	—		3,745		611		4,356
Forward loan sales commitments	—		—		178		178
Liabilities held in trust for deferred compensation plans	33,217		—		—		33,217
Total liabilities at fair value	$	33,217	$	3,745	$	789	$	37,751


(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 our 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.

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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)	Investment securities carried at fair value			Loans held-for-sale			Interest-only strips			Interest rate lock commitments			Other derivative contracts			Forward loan sales commitments
At or For the Three Months Ended September 30, 2019
Asset (liability) balance, beginning of period	$	3		$	29,211		$	15,236		$	1,402		$	(435	)	$	(145	)
Transfers out of Level 3⁽¹⁾	—			(29,211		)	—			(1,402		)	—			145
Acquired through the Merger	450			—			—			—			—			—
Total net gains (losses) included in:
Net income	—			—			611			—			—			—
Other comprehensive income (loss)	(25		)	—			(65		)	—			—			—
Acquired	—			—			—			—			—			—
Originations	—			—			628			—			—			—
Principal paydowns / settlements	—			—			(2,332		)	—			79			—
Asset (liability) balance, end of period	$	428		$	—		$	14,078		$	—		$	(356	)	$	—
At or For the Three Months Ended September 30, 2018
Asset (liability) balance, beginning of period	$	4		$	18,554		$	19,887		$	858		$	(441	)	$	110
Total net gains (losses) included in:
Net income	—			(184		)	732			(242		)	(292		)	359
Other comprehensive income (loss)	—			—			246			—			—			—
Sales	—			(97,866		)	—			—			—			—
Originations	—			98,018			—			—			—			—
Principal paydowns / settlements	—			(3		)	(3,153		)	—			75			—
Asset (liability) balance, end of period	$	4		$	18,519		$	17,712		$	616		$	(658	)	$	469
At or For the Nine Months Ended September 30, 2019
Asset (liability) balance, beginning of period	$	4		$	18,070		$	16,835		$	624		$	(583	)	$	(26	)
Total net gains (losses) included in:
Acquired through the Merger	450			—			—			—			—			—
Net income	—			534			1,976			778			—			(119		)
Other comprehensive income (loss)	(25		)	—			246			—			—			—
Sales	—			(164,693		)	—			—			—			—
Originations	—			175,304			2,180			—			—			—
Principal paydowns / settlements	(1		)	(4		)	(7,159		)	—			227			—
Transfers out of Level 3⁽¹⁾	—			(29,211		)	—			(1,402		)	—			145
Asset (liability) balance, end of period	$	428		$	—		$	14,078		$	—		$	(356	)	$	—
At or For the Nine Months Ended September 30, 2018
Asset (liability) balance, beginning of period	$	6		$	3,356		$	21,386		$	223		$	(615	)	$	63
Total net gains (losses) included in:
Net income	—			254			1,913			393			(274		)	406
Other comprehensive income (loss)	—			—			1,015			—			—			—
Sales	—			(232,747		)	—			—			—			—
Originations	—			247,667			3,849			—			—			—
Principal paydowns / settlements	(2		)	(11		)	(10,451		)	—			231			—
Asset (liability) balance, end of period	$	4		$	18,519		$	17,712		$	616		$	(658	)	$	469


(1)	Certain assets (liabilities) previously classified as Level 3 were transferred to Level 2 because current period prices are derived from Level 2 observable market data.

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Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis

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

Loans and Leases Held-for-sale: Auto loans held-for-sale, which were previously classified as held-for-investment were transferred to held-for-sale and recorded at the lower of the loan carrying amount or fair value. The fair value is determined based on internal estimates and/or assessments.

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 ~~Consolidated Statements~~fair value of ~~Financial Position.~~that collateral less estimated selling costs. The ~~Corporation utilizes~~fair value of the ~~proportional amortization method to account for investments in qualified affordable housing projects~~collateral is determined based on internal estimates and/or assessments provided by third-party appraisers and the ~~equity method~~valuation relies on discount rates ranging from 10.00% to ~~account for investments~~54.00%. Effective January 1, 2019, in ~~other tax credit projects.~~

~~Under~~conjunction with the ~~proportional amortization method,~~adoption of ASU No. 2016-02, Leases (Topic 842) and the ~~Corporation amortizes the initial cost~~related ASUs, such loans and leases include nonaccrual impaired loans and leases as well as certain delinquent nonaccrual consumer loans. Previously, TCF did not include nonaccrual impaired leases. The fair value of the ~~investment~~collateral is determined based on internal estimates and/or assessments provided by third-party appraisers.

Other Real Estate Owned: 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 ~~proportion~~an active market in the determination of fair value and include a discount rate of 8.00%. Assets acquired through foreclosure 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.

Repossessed and Returned Assets: The fair value of repossessed and returned assets, categorized as Level 2 or Level 3 depending on the ~~tax credits~~underlying asset type, is based on available pricing guides, auction results or price opinions, less estimated selling costs. Unobservable inputs used to value repossessed and ~~other tax benefits.~~ returned assets categorized as Level 3 include discount rates ranging from 20.00% to 30.00%. Assets acquired through 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 repossessed and returned assets.

The ~~Corporation recognized income tax expense attributable to the amortization~~balances of investments in qualified affordable housing projects of $1.0 million and $0.8 million during the three months ended September 30, 2018 and 2017, respectively, and $3.1 million and $2.3 million during the nine months ended September 30, 2018 and 2017, respectively. The Corporation's remaining investment in qualified affordable housing projects accounted for under the proportional amortization method totaled $52.2 millionassets measured at fair value on a non-recurring basis were as follows. There were no liabilities measured at fair value on a non-recurring basis at September 30, ~~2018~~2019 and ~~$51.4 million at~~ December 31, ~~2017.~~2018.

~~Under~~



(In thousands)	Level 1		Level 2		Level 3		Total
At September 30, 2019
Loans held-for-sale	$	—	$	136	$	1,220,621	$	1,220,757
Loans and leases	—		—		130,991		130,991
Other real estate owned	—		—		17,924		17,924
Repossessed and returned assets	—		6,841		5,762		12,603
Total non-recurring fair value measurements	$	—	$	6,977	$	1,375,298	$	1,382,275
At December 31, 2018
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

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Fair Value Option

TCF has elected the ~~equity method,~~fair value option for residential loans held-for-sale. This election facilitates the ~~Corporation's share~~offsetting of changes in fair value of the ~~earnings or~~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)	September 30, 2019		December 31, 2018
Fair value carrying amount	$	114,831	$	18,070
Aggregate unpaid principal amount	111,540		17,517
Fair value carrying amount less aggregate unpaid principal	$	3,291	$	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 ~~is included in "Other operating expenses"~~ on the ~~Consolidated Statements of Income. The Corporation's remaining investment in new market projects accounted for~~related loan commitment prior to funding. NaN loans recorded under the ~~equity method totaled $11.0 million and $17.3 million~~fair value option were delinquent or on nonaccrual status at September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~

2018. The ~~Corporation's unfunded equity contributions relating~~net gain from initial measurement of the loans held-for-sale, any subsequent changes in fair value while the loans are outstanding and any actual adjustment to ~~investments in qualified affordable housing projects, federal historic tax projects and new market projects is recorded in "Interest payable and other liabilities" on~~ the ~~Consolidated Statements~~gains realized upon sales of ~~Financial Position. The Corporation's remaining unfunded equity contributions~~the loans totaled ~~$42.3~~$12.4 million and ~~$48.1~~$18.3 million ~~at September 30, 2018 and December 31, 2017, respectively.~~

~~Management analyzes these investments~~ for potential impairment when events or changes in circumstances indicate that it is more-likely-than-not that the carrying amount of the investment will not be realized. An impairment loss is measured as the amount by which the carrying amount of an investment exceeds its fair value. During the three months ended September 30, 2018 federal historic tax credits resulted in an income tax benefit of $3.2 million, partially offset by impairment expense of $3.2 million, representing $2.5 million net of tax, recorded in "other noninterest expense." During the nine months ended September 30, 2018 federal historic tax credits resulted in an income tax benefit of $6.6 million, partially offset by impairment expense of $6.5 million, representing $5.1 million net of tax, recorded in "other noninterest expense." During both the three and nine months ended September 30, ~~2017, an income tax benefit~~2019, respectively, and $2.7 million and $6.9 million for the same periods in 2018, and are included in net (losses) gains on sales of ~~$2.3 million, partially offset by impairment expense~~loans and leases. These amounts exclude the impacts from the interest rate lock commitments and forward loan sales commitments which are also included in net (losses) gains on sales of ~~$3.1 million, representing $2.0 million net~~loans and leases.

Disclosures about Fair Value of ~~tax, recorded in "other noninterest expense" was recognized as a result of a federal historic tax credit placed into service.~~Financial Instruments

~~The Corporation consolidates variable interest entities ("VIEs") in which it is~~Management discloses the primary beneficiary. In general, a VIE is an entity that either (i) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (ii) has a group of equity owners that are unable to make significant decisions about its activities or (iii) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns as generated by its operations. If any of these characteristics are present, the entity is subject to a variable interest consolidation model, and consolidation is based on variable interests, not on ownership of the entity's outstanding voting stock. Variable interests are defined as contractual, ownership, or other monetary interests in an entity that change with fluctuations in the entity's net asset value. The primary beneficiary consolidates the VIE. The primary beneficiary is defined as the enterprise that has the power to direct the activities and absorb losses or the right to receive benefits. The Corporation is a significant limited partner in the qualified affo~~rdable housing, federal historic and new market projects it has invested in~~. These projects meet the definition of VIEs. However, the Corporation is not the primary beneficiary of any of the VIEs in which it holds a limited partnership interest; therefore, the VIEs are not consolidated in the Corporation's Consolidated Financial Statements.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Note 11: Commitments, Contingencies and Guarantees~~

~~Commitments~~

~~In the normal course of business, the Corporation offers a variety~~estimated fair value of financial instruments, ~~containing credit risk that are not required to be reflected in~~including assets and liabilities on and off the Consolidated Statements of Financial ~~Position.~~Condition, for which it is practicable to estimate fair value. These financial instruments include outstanding commitments to extend credit, approved but undisbursed loans (undisbursed loan commitments), credit lines, commercial letters of credit and standby letters of credit. The Corporation has risk management policies to identify, monitor and limit exposure to credit risk. To mitigate credit risk for these financial guarantees, the Corporation generally determines the need for specific covenant, guarantee and collateral requirements on a case-by-case basis, depending on the nature of the financial instrument and the customer’s creditworthiness.

Atfair value estimates were made at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018 based on relevant market information and information about the ~~Corporation had $126.1 million and $187.6 million, respectively, of outstanding~~ financial ~~and performance standby letters of credit. The majority of these standby letters of credit~~instruments. Fair value estimates are ~~collateralized. The Corporation determined that there were no potential losses from standby letters of credit~~intended to represent the price at ~~September 30, 2018 and December 31, 2017.~~

~~Commitments to extend credit are agreements to lend to~~which an asset could be sold or a ~~customer provided~~liability could be settled. However, given there is no ~~violation~~active market or observable market transactions for many of ~~any condition established~~TCF'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 ~~commitment. Commitments generally have fixed expiration dates or other termination clauses~~estimated values.

The carrying amounts and ~~may not require payment~~estimated fair values of TCF'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 fee. Since many commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on an individual basis. The amountrecurring basis, were as follows. This information represents only a portion of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the counterparty. The collateral held varies, but may include securities, real estate, accounts receivable, inventory, plant or equipment. Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are included in commitments to extend credit. These lines of credit are generally not collateralized, usually do not contain a specified maturity date and may be drawn upon only to the total extent to which the Corporation is committed. At September 30, 2018 and December 31, 2017, the Corporation had $3.10 billion and $3.03 billion, respectively, of commitments to extend credit. The Corporation had undisbursed loan commitments of $600.7 million and $571.0 million at September 30, 2018 and December 31, 2017, respectively. Undisbursed loan commitments are not included in loans on theTCF's Consolidated Statements of Financial ~~Position. The majority of undisbursed loan commitments will be funded and convert to a portfolio loan within a one year period.~~

The allowance for credit losses on lending-related commitments included $1.7 million and $1.2 million at September 30, 2018 and December 31, 2017, respectively, for probable credit losses inherent in the Corporation's unused commitments and wasCondition not recorded in ~~"Interest payable~~their entirety on a recurring basis and ~~other liabilities" in~~not the ~~Consolidated Statements~~estimated value of ~~Financial Position.~~

~~Contingencies~~TCF as a whole. Non-financial instruments such as the intangible value of TCF's branches and ~~Guarantees~~

~~The Corporation has originated~~core deposits, leasing operations, goodwill, premises and sold certain loans, and additionally acquired the potential liability for those historical originated and sold loans by merged or acquired entities, for which the buyer has limited recourse to us in the event the loans do not perform as specified in the agreements. These loans had an outstanding balance of $14.4 million and $13.3 million at September 30, 2018 and December 31, 2017, respectively. The maximum potential amount of undiscounted future payments that the Corporation could be required to make in the event of nonperformance by the borrower totaled $14.2 million and $12.8 million at September 30, 2018 and December 31, 2017, respectively. In the event of nonperformance, the Corporation has rights to the underlying collateral securing the loans. At September 30, 2018 and December 31, 2017, the Corporation had recorded a liability of $0.1 million and $0.2 million, respectively, in connection with the recourse agreements, recorded in "Interest payable and other liabilities" in the Consolidated Statements of Financial Position.

~~Representations and Warranties~~

~~In connection with the Corporation's mortgage banking loan sales,~~equipment and the ~~historical sales~~future revenues from TCF's customers are not reflected in this disclosure. Therefore, this information is of ~~merged or acquired entities,~~limited use in assessing the Corporation makes certain representations and warranties that the loans meet certain criteria, such as collateral type and underwriting standards. The Corporation may be required to repurchase individual loans and/or indemnify the purchaser against losses if the loan fails to meet established criteria. At September 30, 2018 and December 31, 2017, the liability recorded in connection with these representations and warranties totaled $4.3 million and $5.3 million, respectively.

value of TCF.



	At September 30, 2019
	Carrying		Estimated Fair Value
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial instrument assets
FHLB and FRB stocks	$	290,238	$	—	$	290,238	$	—	$	290,238
Investment securities held-to-maturity	144,000		—		146,252		3,676		149,928
Loans and leases held-for-sale	100,216		—		84,959		18,331		103,290
Net loans⁽¹⁾	30,916,379		—		—		30,897,046		30,897,046
Loan servicing rights	55,301		—		—		55,301		55,301
Securitization receivable⁽²⁾	19,624		—		—		19,355		19,355
Deferred fees on commitments to extend credit	18,485		—		18,485		—		18,485
Total financial instrument assets	$	31,544,243	$	—	$	539,934	$	30,993,709	$	31,533,643
Financial instrument liabilities
Certificates of deposits	$	8,385,972	$	—	$	8,385,496	$	—	$	8,385,496
Long-term borrowings	860,482		—		875,864		—		875,864
Deferred fees on standby letters of credit	38		—		38		—		38
Total financial instrument liabilities	$	9,246,492	$	—	$	9,261,398	$	—	$	9,261,398

Table of Contents

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~A summary of the reserve for representations and warranties of the Corporation is as follows:~~



	At December 31, 2018
	Carrying		Estimated Fair Value
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial instrument assets
FHLB and FRB stocks	$	91,654	$	—	$	91,654	$	—	$	91,654
Investment securities held-to-maturity	148,852		—		146,467		2,800		149,267
Loans held-for-sale	72,594		—		—		74,078		74,078
Net loans⁽¹⁾	16,384,702		—		—		16,399,551		16,399,551
Securitization receivable⁽²⁾	19,432		—		—		19,025		19,025
Deferred fees on commitments to extend credit	18,555		—		18,555		—		18,555
Total financial instrument assets	$	16,735,789	$	—	$	256,676	$	16,495,454	$	16,752,130
Financial instrument liabilities
Certificates of deposits	$	4,790,680	$	—	$	4,820,442	$	—	$	4,820,442
Long-term borrowings	1,449,472		—		1,451,550		—		1,451,550
Deferred fees on standby letters of credit	77		—		77		—		77
Total financial instrument liabilities	$	6,240,229	$	—	$	6,272,069	$	—	$	6,272,069

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 2018 2017
Reserve balance at beginning of period $ 4,860
$ 5,469
$ 5,349
$ 6,459
Reserve reduction (580 ) (71 ) (1,067 ) (1,061 )
Charge-offs (7 ) (9 ) (9 ) (9 )
Ending reserve balance $ 4,273
$ 5,389
$ 4,273
$ 5,389

(Dollars in thousands) September 30, 2018 December 31, 2017
Reserve balance
Liability for specific claims $ 403
$ 531
General allowance 3,870
4,818
Total reserve balance $ 4,273
$ 5,349

~~Note 12: Borrowings and Other Short-Term Liabilities~~

~~A summary of the Corporation's short- and long-term borrowings, and other short-term liabilities follows:~~

September 30, 2018 December 31, 2017
(Dollars in thousands) Amount
Weighted Average Rate ⁽¹⁾
Amount
Weighted Average Rate ⁽¹⁾
Short-term borrowings:
FHLB advances: 2.14% - 2.27% fixed-rate notes $ 1,670,000
2.21 % $ 2,000,000
1.39 %
Long-term borrowings:
FHLB advances: 1.00% - 2.72% fixed-rate notes due 2018 to 2025⁽²⁾
415,118
2.00
337,204
1.26
Line-of-credit: floating-rate based on one-month LIBOR plus 1.75% —
—
19,963
3.10
Subordinated debt obligations: floating-rate based on three-month LIBOR plus 1.45% - 2.85% due 2034 to 2035⁽³⁾
11,535
4.55
11,425
3.69
Subordinated debt obligations: floating-rate based on three-month LIBOR plus 3.25% due in 2032⁽⁴⁾
4,318
5.59
4,290
4.59
Total long-term borrowings 430,971
2.10
372,882
1.47
Total borrowings $ 2,100,971
2.19 % $ 2,372,882
1.40 %
Other short-term liabilities:
Collateralized customer deposits $ 377,471
0.71 % $ 415,236
0.44 %


⁽¹⁾	~~Weighted average rate presented is~~Expected credit losses are included in the ~~contractual rate which excludes premiums and discounts related to purchase accounting.~~estimated fair values.


⁽²⁾	The September 30, 2018 balances include advances payable of $415.0 million and purchase accounting premiums of $0.1 million. The December 31, 2017 balance includes advances payable of $337.0 million and purchase accounting premiums of $0.2 million.


⁽³⁾	The September 30, 2018 balance includes advances payable of $15.0 million and purchase accounting discounts of $3.5 million. The December 31, 2017 balance includes advances payable of $15.0 million and purchase accounting discounts of $3.6 million.


⁽⁴⁾	The September 30, 2018 balance includes advances payable of $5.0 million and purchase accounting discounts of $0.7 million. The December 31, 2017 balance includes advances payable of $5.0 million and purchase accounting discounts of $0.7 million.Carrying amounts are included in other assets.

Chemical Bank is a member of the FHLB, which provides short- and long-term funding collateralized by mortgage related assets to its members. Each advance is payable at its maturity date, with a prepayment penalty for fixed-rate advances. The Corporation's FHLB advances, including both short-term and long-term, require monthly interest payments and are collateralized by commercial and residential mortgage loans totaling $7.62 billion as of September 30, 2018. The Corporation's additional borrowing availability through the FHLB, subject to the FHLB's credit requirements and policies and based on the amount of

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

FHLB stock owned by the Corporation, was $547.9 million at September 30, 2018. Effective January 1, 2018, the Corporation adopted ASU 2016-01. As a result, the Corporation will continue to report FHLB and Federal Reserve Bank ("FRB") stock at cost.

Table of Contents

Note ~~13:~~20. Revenue from Contracts with Customers

~~The Corporation~~TCF earns a variety of revenue, including interest and fees, from customers, as well as revenues from ~~non-customers. Certain~~noncustomers. The majority of TCF's sources of revenue are ~~recognized within~~included in interest income and noninterest income and are outside of the scope of ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). Other sources of revenue fall within the scope of ASC 606 and are mostly ~~recognized within "Noninterest Income"~~included in ~~the Consolidated Statements of Income.~~noninterest income.

~~The Corporation~~TCF recognizes revenue when the performance obligations related to the transfer of goods or services under the terms of a contract are satisfied. Some obligations are satisfied at a point in time, while others are satisfied over a period of time. Revenue is recognized as the amount of consideration expected to be received in exchange for transferring goods or services to a customer and is segregated based on the nature of product and services offered as part of contractual arrangements. Revenue streams within the scope of ASC 606 are discussed below.

•

Fees and Service Charges on Deposit Accounts Fees and service charges on deposit accounts includes fees and other charges TCF receives to provide various services, including but not limited to, service charges on deposit accounts and other fees including account analysis fees, monthly service fees, overdraft services, transferring funds, and accepting and executing stop-payment orders. TCF's performance obligation for account analysis fees and monthly service fees are generally satisfied and, therefore, revenue is recognized over the period in which the service is provided. Deposit account related fees are largely transactional based, and therefore, the performance obligation is satisfied and the related revenue is recognized at the point in time when the transaction occurs.

•

Wealth Management Revenue Wealth management revenue includes fee income generated from personal and institutional customers. TCF also provides investment management services. Revenue is recognized over the period of time the services are rendered. Wealth management revenue also includes commissions that are earned for placing a brokerage transaction for execution. Revenue is recognized once the transaction is completed and TCF is entitled to receive consideration.

•

Card and ATM Revenue Card and ATM revenue includes ATM surcharges and debit card related revenue. ATM surcharges and certain debit card fees are transactional based and, therefore, the performance obligation is satisfied and the related revenue is recognized at the point in time when the transaction occurs. Other debit card fees satisfied over a period of time are recognized over the period in which the service is provided.

•

Other Noninterest Income Other noninterest income includes wire transfer fees, safe deposit box income and check orders. The consideration includes both fixed (e.g., safe deposit box fees) and transaction (i.e., wire-transfer fee and check orders) fees. Fixed fees are recognized over the period of time the service is provided, while transaction fees are recognized when a specific service is rendered to the customer.


•	Net Foreclosed Real Estate and Repossessed Assets Expense Net foreclosed real estate and repossessed assets expense includes net gain or loss on sales of other real estate owned and repossessed assets. Revenue is recognized at the time the sale is complete and TCF is entitled to receive consideration, including sales that are seller financed as receipt of all payment is expected.

~~Service charges and fees on deposit accounts~~ include fees and other charges the Corporation receives to provide various services, including but not limited to, maintaining an account with a customer, providing overdraft services, wire transfers, transferring funds, and accepting and executing stop-payment orders. The consideration includes both fixed (e.g., account maintenance fees) and transaction fees (i.e., wire-transfer fee). Fixed fees are recognized over the period of time the service is provided while transaction fees are recognized when a specific service is rendered to the customer.

~~Wealth management revenue~~ includes fee income generated from personal and institutional customers. The Corporation also provides investment management services. Services are rendered over a period of time, over which revenue is recognized. Wealth management revenue also includes commissions that are earned for placing a brokerage transaction for execution, such as stocks or other investments. Revenue is recognized once the transaction is completed and the Corporation is entitled to receive consideration.

~~Other charges and fees for customer services~~ includes service charges on deposit accounts and other fees including account analysis fees, monthly service fees, check orders, ATM fees and other service charges. The Corporation's performance obligation for account analysis fees and monthly service fees is generally satisfied, and therefore, revenue is recognized over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the performance obligation is satisfied and related revenue recognized, at a point in time.

~~Other noninterest expense~~ includes net gain or loss on sales of other real estate and repossessed assets. Revenue is recognized at the time the sale is complete and the Corporation is entitle to receive consideration, including sales that are seller financed as receipt of all payment is expected.

5049

Table of Contents

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

The following ~~table presents~~tables present total noninterest income segregated between contracts with customers within the scope of ASC 606 and those within the scope of other GAAP ~~Topics. The following additionally presents revenues from customers and non-customers that are included within noninterest income and expense.~~topics.



	Three Months Ended September 30, 2019
	Within the scope of ASC 606								Out of scope of ASC 606			Total
(In thousands)	Consumer Banking			Commercial Banking			Enterprise Services		Out of scope of ASC 606			Total
Noninterest income
Fees and service charges on deposit accounts	$	29,198		$	1,308		$	—	$	3,878		$	34,384
Wealth management revenue	1,047			—			—		3,194			$	4,241
Card and ATM revenue	21,476			23			—		1,816			$	23,315
Other noninterest income	137			(2,887		)	2,610		(12,169		)	$	(12,309	)
Total	$	51,858		$	(1,556	)	$	2,610	$	(3,281	)	$	49,631
Noninterest expense
Net foreclosed real estate and repossessed assets	$	(593	)	$	214		$	—	$	2,582		$	2,203



	Three Months Ended September 30, 2018
	Within the scope of ASC 606								Out of scope of ASC 606		Total
(In thousands)	Consumer Banking			Commercial Banking			Enterprise Services		Out of scope of ASC 606		Total
Noninterest income
Fees and service charges on deposit accounts	$	28,055		$	1,082		$	—	$	38	$	29,175
Wealth management revenue	—			—			—		—		$	—
Card and ATM revenue	19,999			14			—		61		$	20,074
Other noninterest income	(100		)	(2,649		)	4,686		4,306		$	6,243
Total	$	47,954		$	(1,553	)	$	4,686	$	4,405	$	55,492
Noninterest expense
Net foreclosed real estate and repossessed assets	$	215		$	(59	)	$	—	$	3,724	$	3,880

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, 2018 September 30, 2018
Noninterest income
Service charges and fees on deposit accounts $ 4,820
$ 13,744
Wealth management revenue 811
3,868
Other charges and fees for customer services 2,522
7,392
Noninterest income from contracts with customers within the scope of ASC 606 8,153
25,004
Noninterest income within the scope of other GAAP topics 29,764
91,485
Total noninterest income $ 37,917
$ 116,489
Noninterest expense
Other $ (50 ) $ (734 )



	Nine Months Ended September 30, 2019
	Within the scope of ASC 606								Out of scope of ASC 606			Total
(In thousands)	Consumer Banking			Commercial Banking			Enterprise Services		Out of scope of ASC 606			Total
Noninterest income
Fees and service charges on deposit accounts	$	81,098		$	3,504		$	—	$	3,902		$	88,504
Wealth management revenue	1,047			—			—		3,194			$	4,241
Card and ATM revenue	60,581			62			—		1,827			$	62,470
Other noninterest income	1,504			(5,271		)	9,986		(6,531		)	$	(312	)
Total	$	144,230		$	(1,705	)	$	9,986	$	2,392		$	154,903
Noninterest expense
Net foreclosed real estate and repossessed assets	$	(152	)	$	536		$	—	$	8,897		$	9,281



	Nine Months Ended September 30, 2018
	Within the scope of ASC 606							Out of scope of ASC 606			Total
(In thousands)	Consumer Banking		Commercial Banking			Enterprise Services		Out of scope of ASC 606			Total
Noninterest income
Fees and service charges on deposit accounts	$	80,468	$	3,137		$	—	$	98		$	83,703
Wealth management revenue	—		—			—		—			$	—
Card and ATM revenue	58,095		39			—		179			$	58,313
Other noninterest income	33,729		(6,771		)	15,112		(21,450		)	$	20,620
Total	$	172,292	$	(3,595	)	$	15,112	$	(21,173	)	$	162,636
Noninterest expense
Net foreclosed real estate and repossessed assets	$	719	$	(108	)	$	—	$	12,043		$	12,654

Table of Contents

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. ~~The Corporation's~~TCF's noninterest income streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is most often received immediately or shortly after ~~the Corporation~~TCF satisfies its performance obligation and revenue is recognized. ~~The Corporation~~TCF does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. ~~As of September 30, 2018 and December 31, 2017, the Corporation did not have a material amount of contract balances.~~

Note 21. Stock Based Compensation

~~Note 14: Share-Based Compensation~~

~~The Corporation maintains~~Before the Merger, Chemical and Legacy TCF granted share-based awards under their respective share-based compensation plans, including the Chemical Stock Incentive Plan of 2019 (the "Stock Incentive Plan of 2019”") and the TCF Financial 2015 Omnibus Incentive Plan (the "Legacy TCF Omnibus Incentive Plan"). At September 30, 2019, there were 2,270,795 shares reserved for issuance under ~~which it periodically grants share-based awards~~the Legacy TCF Omnibus Incentive Plan and there were 1,914,083 shares reserved for issuance under the Stock Incentive Plan of 2019.

In connection with the Merger, each equity award granted under Legacy TCF’s equity plans, including the Legacy Omnibus Incentive Plan, was legally assumed by the combined company and adjusted so that its holder is entitled to receive a ~~fixed~~ number of shares of TCF Financial's common stock equal to ~~certain officers~~the product of (a) the number of shares of Legacy TCF common stock subject to such award multiplied by (b) the Exchange Ratio and (c) rounded, as applicable, to the nearest whole share, and otherwise subject to the same terms and conditions (including, without limitation, with respect to vesting conditions (taking into account any vesting that occurred at the Merger Date) and cash dividend equivalent rights). For any Legacy TCF equity awards that were subject to performance-based vesting at multiple achievement levels, the number of shares of Legacy TCF common stock underlying such award was calculated and fixed as of the ~~Corporation.~~ Merger Date assuming achievement of the applicable performance conditions at the greater of target level performance or the actual level of achievement of Legacy TCF’s performance results through the latest practicable date before the Merger Date, and such awards converted into service-based vesting awards with the applicable vesting date to be the last day of the original performance period. For purposes of Legacy TCF equity awards for which performance was achievable at a single level, the performance condition was deemed satisfied as of the Merger Date.

In connection with the Merger, all outstanding stock options, performance-based restricted stock units and time-vesting restricted stock units of Chemical, which we refer to as the Chemical equity awards, which were outstanding immediately before the Merger Date continue to be awards in respect of TCF Financial common stock following the Merger, subject to the same terms and conditions that were applicable to such awards before the Merger Date, except with respect to performance-based restricted stock units. Because the Merger constituted a change in control for purposes of the Chemical equity awards, the performance-based restricted stock units for which performance results had not been measured were measured as of the latest practicable date before the Merger Date and the number of performance-based restricted stock units was fixed at the greater of the target (100%) performance level or actual performance, which we refer to as the “Chemical Earned Awards,” and such Chemical Earned Awards will continue to vest based on the executive’s continued service through the end of the applicable performance period.

The fair value of share-based awards is recognized as compensation expense over the requisite service or performance period. ~~During~~Compensation expense for share-based awards was $4.8 million and $9.5 million for the three ~~months ended September 30, 2018~~ and ~~2017, share-based compensation expense related to share-based awards totaled $1.9 million and $7.6 million, respectively. During the~~ nine months ended September 30, ~~2018~~2019, respectively, and ~~2017, share-based compensation expense related to share-based awards totaled $6.0~~$3.5 million and ~~$14.6~~$13.1 million ~~respectively.~~for the same periods in 2018. The excess tax benefit realized from share-based compensation transactions during the three ~~months ended September 30, 2018~~ and ~~2017 was a benefit of $98 thousand and an expense of $332 thousand, respectively, and during the~~ nine months ended September 30, ~~2018 and 2017~~2019 was a benefit of ~~$1.9~~$0.7 million and ~~$6.1~~$2.0 million, ~~respectively.~~

~~During the nine months ended September 30, 2018, the Corporation granted 315,072 restricted stock units to certain officers of the Corporation.~~

On April 26, 2017, the shareholders of the Corporation approved the Stock Incentive Plan of 2017, which provides for 1,750,000 shares of the Corporation's common stock to be made available for future equity-based awardsrespectively, and canceled the amount of shares available for future grant under prior share-based compensation plans. At September 30, 2018, there were 1,307,256 shares of common stock available for future grants under the Stock Incentive Plan of 2017.

~~Stock Options~~

~~The Corporation issues stock options to certain officers from time to time. The exercise price on stock options equals the current market price of the Corporation's common stock on the date of grant~~$0.3 million and stock options expire ten years from the date of grant. Stock options granted after 2012 vest ratably over a five-year period. Stock options granted prior to 2013 generally vest ratably over a three-year period. Stock options granted prior to August 31, 2016 fully vested upon the merger with Talmer. Stock options assumed by the Corporation in the merger with Talmer on August 31, 2016 were fully vested prior to assumption.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~A summary of activity~~$2.4 million for the ~~Corporation’s stock options as of and for the nine months ended September 30, 2018 is presented below:~~same periods in 2018.

Non-Vested
Stock Options Outstanding
Stock Options Outstanding

Number of
Options

Weighted-
Average
Exercise
Price
Per Share

Weighted-
Average
Grant Date
Fair Value Per Share

Number of
Options

Weighted-
Average
Exercise
Price
Per Share
Outstanding at December 31, 2017 330,870
$ 37.97
$ 7.09
1,110,918
$ 29.56
Exercised —
—
—
(295,419 ) 23.97
Vested (78,533 ) 37.16
6.94
—
—
Forfeited/expired (14,926 ) 37.51
7.03
(14,928 ) 37.51
Outstanding at September 30, 2018 237,411
$ 38.27
$ 7.14
800,571
$ 38.27
Exercisable/vested at September 30, 2018 563,160
$ 28.61

The weighted-average remaining contractual terms were 6.1 years for all outstanding stock options and 5.4 years for exercisable stock options at September 30, 2018. The intrinsic value of all outstanding in-the-money stock options and exercisable in-the-money stock options was $17.6 million and $14.0 million, respectively, at September 30, 2018. The aggregate intrinsic values of outstanding and exercisable options at September 30, 2018 were calculated based on the closing market price of the Corporation’s common stock on September 30, 2018 of $53.40 per share less the exercise price. Options with intrinsic values less than zero, or "out-of-the-money" options, are not included in the aggregate intrinsic value reported. The total intrinsic value of stock options as of September 30, 2017 was $27.7 million.

~~Total cash received from options exercises during both the nine months ended September 30, 2018 and 2017 was $2.6 million, respectively.~~

~~At September 30, 2018, unrecognized compensation expense related to stock options totaled $1.4 million and is expected to be recognized over a remaining weighted average period of 2.8 years.~~

Restricted Stock Units

~~The Corporation grants Performance-Based Restricted Stock Units~~We can grant performance-based restricted stock units ("PRSUs") and ~~Time-Based Restricted Stock Units~~time-based restricted stock units ("TRSUs") (collectively referred to as "RSUs") under the Stock Incentive Plan of 2019 and the Legacy TCF Omnibus Incentive Plan; provided, that, RSUs granted under the Legacy TCF Omnibus Incentive Plan may only be granted to ~~certain officers from time to time. The~~former employees of Legacy TCF. At September 30, 2019, there were 0 PRSUs ~~vest based~~outstanding dependent on ~~the Corporation~~ achieving certain performance target levels and the grantee completing the requisite service period. The PRSUs are eligible to vest from 0.5x to 1.5x the number of units originally granted depending on which, if any, of the performance target levels are met. However, if the minimum performance target levels are not achieved, no shares will become vested or be issued for that respective year’s PRSUs. The TRSUs vest upon satisfaction of a service condition. Upon achievement of the performance target level and/or satisfaction of a service condition, as applicable, the RSUs are converted into shares of ~~the Corporation’s~~TCF Financial's common stock on a one-to-one basis. ~~Compensation expense related to RSUs is recognized over the expected requisite performance or service period, as applicable.~~

Table of Contents

A summary of the activity for RSUs ~~as of~~at and for the nine months ended September 30, ~~2018~~2019 is presented below:

Number of
Units

Weighted-average
grant date fair value per unit
Outstanding at December 31, 2017 380,940
$ 41.29
Granted 315,072
54.41
Converted into shares of common stock (70,459 ) 28.96
Forfeited/expired (15,390 ) 47.43
Outstanding at September 30, 2018 610,163
$ 49.33



	Number of Units		Weighted-average Grant Date Fair Value Per Unit
Outstanding at December 31, 2018	406,575		$	17.33
Outstanding at December 31, 2018 as adjusted for conversion	206,580		34.11
Granted	533,267		41.51
Converted in the Merger⁽¹⁾	55,022		42.06
Acquired in the Merger	824,757		47.71
Forfeited/canceled	(20,648	)	41.64
Vested	(104,652	)	28.85
Outstanding at September 30, 2019	1,494,326		$	38.46


(1)	In connection with the Merger, certain Legacy TCF PRSUs were converted at their maximum payout into 55,022 TRSUs.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~At September 30, 2018, unrecognized~~Unrecognized compensation expense related to RSUs totaled ~~$18.5~~$45.8 million and is expected to be recognized over the remaining weighted-average period of 2.4 years at September 30, 2019.

Restricted Stock Awards

TCF's restricted stock award transactions were as follows:



	Number of Awards		Weighted-Average Grant Date Fair Value Per Award
Outstanding at December 31, 2018	2,289,446		$	16.70
Outstanding at December 31, 2018 as adjusted for conversion	1,163,232		32.87
Granted	269,915		40.82
Forfeited/canceled	(135,760	)	34.15
Vested	(368,291	)	31.07
Outstanding at September 30, 2019	929,096		$	40.47

At September 30, 2019, there were 0 shares of performance-based restricted stock awards outstanding. Unrecognized stock compensation expense for restricted stock awards was $22.5 million with a weighted-average remaining amortization period of 2.5 years at September 30, 2019.

Stock Options

A summary of activity for TCF's stock options at and for the nine months ended September 30, 2019 is presented below:



	Non-Vested Stock Options Outstanding				Stock Options Outstanding
	Number of Options		Weighted-average Exercise Price		Number of Options		Weighted- average Exercise Price
Outstanding at December 31, 2018	—		$	—	—		$	—
Acquired⁽¹⁾	127,906		39.38		520,379		29.48
Forfeited/canceled	(3,094	)	32.81		—		—
Expired	—		—		(756	)	32.81
Vested	(1,144	)	46.95		1,144		46.95
Outstanding at September 30, 2019	123,668		$	39.47	520,767		$	29.51
Exercisable/vested at September 30, 2019					520,767		$	29.51


(1)	Options acquired in the Merger expire ten years from the date of grant and vest ratably over a five-year period.

The weighted-average remaining contractual term was 4.28 years for all outstanding stock options and 3.7 years for exercisable stock options at September 30, 2019. The intrinsic value of all outstanding in-the-money stock options and exercisable in-the-money stock options was $5.8 million and $5.3 million, respectively, at September 30, 2019. The aggregate intrinsic values of outstanding and exercisable options at September 30, 2019 were calculated based on the closing market price of TCF Financial's common stock on September 30, 2019 of $38.07 per share less the

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exercise price. Options with intrinsic values less than zero, or "out-of-the-money" options, are not included in the aggregate intrinsic value reported.

No cash was received from option exercises during the nine months ended September 30, 2019 and for the same period in 2018.

At September 30, 2019, unrecognized compensation expense related to stock options totaled $0.7 million and is expected to be recognized over a remaining weighted average period of ~~3.2~~1.88 years.

~~Restricted Stock Awards~~

The Corporation assumed restricted stock awards in the merger with Talmer that vest upon completion of future service requirements. The fair value of these awards is equal to the market price of the Corporation's common stock at the date the awards were assumed with the portion of the fair value related to post-combination service. The Corporation recognizes stock-based compensation expense over the vesting period, using the straight-lined method, based upon the number of shares of restricted stock ultimately expected to vest. If an individual awarded a restricted stock award terminates employment prior to the end of the vesting period, the unvested portion of the stock is forfeited, with certain exceptions.

~~The following table provides information regarding nonvested restricted stock awards:~~

Nonvested restricted stock awards Number of Awards Weighted-average acquisition-date
fair value
Nonvested at January 1, 2018 83,228
$ 46.23
Vested (41,784 ) 46.23
Forfeited (592 ) 46.23
Nonvested at September 30, 2018 40,852
$ 46.23

At September 30, 2018, unrecognized compensation expense related to nonvested restricted stock awards totaled $0.8 million and is expected to be recognized over a remaining weighted average period of 0.4 years.

Note 22. Retirement Plans

~~Note 15:~~

TCF maintains four Legacy TCF employee benefit plans: (i) the TCF 401K Plan (the "TCF 401K"), (ii) the TCF 401k Supplemental Plan (the "Legacy TCF Supplemental Plan"), (iii) the TCF Cash Balance Pension ~~and Other Postretirement Benefit Plans~~

~~The Corporation's retirement plans include~~Plan (the "Legacy TCF Pension Plan"), a ~~qualified~~ defined benefit pension plan, and (iv) the TCF Postretirement Plan (the "Legacy TCF Postretirement Plan"), a ~~nonqualified pension plan, a nonqualified~~ postretirement benefit plan, ~~a 401(k) savings plan, and a multi-employer defined~~each of which were discussed in Legacy TCF's Annual Report on Form 10-K for the year ended December 31, 2018.

TCF also maintains the Chemical employee benefit ~~plan.~~

~~Qualified Defined Benefit Pension Plan~~

~~The~~plans that existed before the Merger: (i) the Chemical Financial Corporation ~~Employees’~~Nonqualified Postretirement Benefit Plan (the "Chemical Postretirement Benefit Plan"), a postretirement benefit plan, and (ii) the Chemical Financial Corporation 401k Savings Plan (the "Chemical 401k").

In addition, Chemical has a pension plan, the Chemical Pension Plan, ~~(the "Pension Plan") was~~which is a qualified defined-benefit, noncontributory pension ~~plan, which provided for postretirement pension benefits for certain salaried employees~~plan. However, the termination of the ~~Corporation and its subsidiary,~~ Chemical ~~Bank. Benefits under the~~ Pension Plan ~~were partially frozen~~was approved effective ~~June 30, 2006. Under~~August 31, 2019. The discount rate was adjusted to 3.48% based on the ~~partial freeze~~remeasurement of the Chemical Pension Plan ~~benefits for employees with less than 15 years of service or whose combined age plus years of service were less than 65 at June 30, 2006, were based on years of vested service at June 30, 2006~~required due to the Merger and ~~generally~~ the ~~average~~termination. At the time of the ~~employee's salary for~~Merger, as a result the ~~five years ended June 30, 2006. In addition, no employee hired after January 1, 2006 was eligible to participate in~~pending termination, TCF recognized a prepaid asset representing the ~~Pension Plan. Effective September 30, 2017,~~funded status of the ~~Pension and Compensation Committee approved an amendment to the~~Chemical Pension Plan, ~~to cease accruing additional benefits under~~net of estimated settlement costs, and the ~~existing pension benefit formula after~~balance previously in accumulated other comprehensive income was eliminated. The purchase accounting adjustment, as a result of the ~~effective date and all accrued benefits were frozen. Retirement benefits under the~~Merger, was reported in goodwill. The Chemical Pension Plan were based on years of vested service at September 30, 2017, up to a maximum of thirty years, and the employee's average annual pay for the five highest consecutive years during the ten years preceding September 30, 2017, except for employees whose benefits were previously frozen during 2006.

Pension Plan benefits are the present value of estimated future periodic payments that are attributable to services rendered by the employees to the valuation date. Benefits include the benefits expected to be paid to (a) retired or terminated employees or their beneficiaries and (b) present employees or their beneficiaries. A discount rate of 3.68% was ~~utilized for the projected benefit obligation as of September 30, 2018. The Pension Plan is~~ fully funded as of September 30, ~~2018.~~2019.

~~Nonqualified Pension Plan~~

The ~~Corporation has a supplemental defined benefit nonqualified pension plan, the~~ Chemical Financial Corporation Supplemental Pension Plan ("SERP"). The Corporation established the SERP to provide payments to certain executive officers of the Corporation, as determined by the Compensation and Pension Committee. The Internal Revenue Code limits both the amount of eligible compensation for benefit calculation purposes and the amount of annual benefits that may be paid from a tax qualified

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

retirement plan. The SERP was designed to provide benefits to executive officers of the Corporation that would have been entitled, calculated under the provisions of the Pension Plan, as if the limits imposed by the Internal Revenue Code did not apply. The SERP is an unfunded plan and, therefore, has no assets.

Effective September 30, 2017, the Pension and Compensation Committee approved a curtailment to the SERP due to the retirement of the final remaining participant in the SERP. As of September 30, 2018, a $0.4 million liability was included in other liabilities and recorded in the Consolidated Statements of Financial Position related to the SERP.

~~Nonqualified~~ Postretirement Benefit Plan

~~The Corporation has a nonqualified postretirement benefit plan ("Postretirement Plan") that~~ provides medical and dental benefits, upon retirement, to a limited number of active and retired employees. The majority of the retirees are required to make contributions toward the cost of their benefits based on their years of credited service and age at retirement. ~~Beginning January 1, 2012, the Corporation amended the Postretirement Plan to extend coverage to~~Covered employees include those who were at least age 50 as of January 1, ~~2012. These employees must also~~2012, that retire at age 60 or older, have at least twenty-five years of service with ~~the Corporation~~Chemical and ~~be participating~~are participants in the active employee group health insurance ~~plan in order to be eligible to participate in the Corporations' Postretirement Plan.~~plan. Eligible employees may also cover their spouse until age 65 as long as the spouse is not offered health insurance coverage through his or her employer. Employees and their spouses eligible to participate in the Chemical Postretirement Benefit Plan ~~will be~~are required to make contributions toward the cost of their benefits upon retirement, with the contribution levels designed to cover the projected overall cost of these benefits over the long-term. Retiree contributions are generally adjusted annually. The accounting for these postretirement benefits anticipates changes in future cost-sharing features such as retiree contributions, deductibles, copayments and coinsurance. The ~~Corporation reserves the right to amend, modify~~benefits can be amended, modified or ~~terminate these benefits~~terminated by us at any time.

The ~~components of net periodic benefit cost for the Corporation’s qualified and nonqualified pension plans and nonqualified postretirement benefit plan are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 2018 2017
Defined Benefit Pension Plans
Service cost⁽¹⁾
$ —
$ 233
$ —
$ 700
Interest cost 1,092
1,302
3,276
3,906
Expected return on plan assets (2,220 ) (2,216 ) (6,659 ) (6,650 )
Amortization of unrecognized net loss 178
578
533
1,734
Settlement —
322
—
322
Net periodic benefit cost (income)⁽²⁾
$ (950 ) $ 219
$ (2,850 ) $ 12
Postretirement Benefit Plan
Service cost⁽¹⁾
$ 1
$ 1
$ 2
$ 4
Interest cost 20
24
61
70
Amortization of unrecognized net gain (36 ) (41 ) (107 ) (121 )
Net periodic benefit cost (income)⁽²⁾
$ (15 ) $ (16 ) $ (44 ) $ (47 )


⁽¹⁾	~~Service cost is included in "Salaries, wages and employee benefits expense" on the Consolidated Statements of Income.~~


⁽²⁾	~~Net periodic benefit cost (income), excluding service cost is included "Other" operating expenses on the Consolidated Statements of Income.~~

Chemical ~~Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~401(k) Savings Plan~~

~~The Corporation's 401(k) Savings Plan~~401k is available to all former Chemical employees that continue to be employed following the Merger Date, and provides ~~employees with~~ tax deferred salary deductions and alternative investment options. ~~Effective January 1, 2018, the Corporation provides~~We provide a safe harbor matching contribution of the participants elective deferrals up to a maximum of 6.0% of eligible compensation up to the maximum amount allowed under the Internal Revenue Code. ~~Prior~~The Chemical 401k provides the option to invest in TCF Financial common stock.

The Board of Directors approved the termination of the Legacy TCF Pension Plan effective November 1, 2019. The Legacy TCF Pension Plan was fully funded as of September 30, 2019. The weighted-average interest crediting rate was 2.24% as of September 30, 2019. TCF does not consolidate the assets and liabilities associated with the Legacy TCF Pension Plan.

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The net periodic benefit plan (income) cost for defined benefit pension plans and postretirement benefit plans were as follows:



	Defined Benefit Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Interest cost	$	1,046		$	246		$	1,574		$	738
Service cost	—			—			—			—
Contractual termination cost	—			—			—			—
Return on plan assets	(949		)	(133		)	(1,223		)	(397		)
Amortization of prior service credit	—			—			—			—
Amortization of unrecognized net loss	—			—			—			—
Recognized actuarial (gain) loss	—			—			—			—
Net periodic benefit plan (income) cost	$	97		$	113		$	351		$	341



	Postretirement Benefit Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Interest cost	$	41		$	28		$	101		$	83
Service cost	—			—			—			—
Recognized actuarial (gain) loss	—			—			—			—
Amortization of prior service cost	(11		)	(12		)	(35		)	(35		)
Amortization of unrecognized net loss	—			—			—			—
Net periodic benefit plan (income) cost	$	30		$	16		$	66		$	48

TCF made 0 cash contributions to the ~~January 1, 2018, the Corporation provided an employer match, in addition to a 4.0% contribution for all employees, with the exception of employees participating in the Pension Plan discussed above,~~defined benefit pension plans during the ~~time period they were eligible to earn service credits. The Corporation previously matched 50.0% of the participants elective deferrals on the first 4.0% of the participants' base compensation up~~three and nine months ended September 30, 2019 and 2018. TCF contributed $0.1 million and $0.3 million to the ~~maximum amount allowed under~~Legacy TCF Postretirement Plan during the ~~Internal Revenue Code.~~ three and nine months ended September 30, 2019, and $0.1 million and $0.3 million during the same periods in 2018.

The ~~Corporation's~~TCF match under both the ~~401(k) Savings Plan~~Legacy TCF 401k and the Chemical 401k was ~~$1.5~~$4.3 million and ~~$6.3~~$11.4 million for the three and nine months ended September 30, ~~2018, respectively, compared to~~2019, and $2.5 million and ~~$7.5~~$9.7 million ~~for~~during the ~~three and nine months ended September 30, 2017, respectively.~~same periods in 2018.

~~The 401(k) Savings Plan provides employees with the option to invest in the Corporation's common stock.~~

~~Note 16: Regulatory Capital~~

Federal and state banking regulations place certain restrictions on the transfer of assets, in the form of dividends, loans, or advances, from Chemical Bank to the Corporation. As of September 30, 2018, substantially all of the assets of Chemical Bank were restricted from transfer to the Corporation in the form of loans or advances. Dividends from Chemical Bank are the principal source of funds for the Corporation. In addition to the statutory limits, the Corporation considers the overall financial and capital position of Chemical Bank prior to making any cash dividend decisions.

The Corporation and Chemical Bank are subject to various regulatory capital requirements administered by federal banking agencies. Under these capital requirements, Chemical Bank must meet specific capital guidelines that involve quantitative measures of assets and certain off-balance sheet items as calculated under regulatory accounting practices. In addition, capital amounts and classifications are subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements. Management believes as of September 30, 2018, the Corporation and Chemical Bank met all capital adequacy requirements to which they are subject.

Quantitative measures established by regulation to ensure capital adequacy require minimum ratios of Tier 1 capital to average assets (Leverage Ratio) and Common Equity Tier 1, Tier 1 and Total capital to risk-weighted assets. These capital guidelines assign risk weights to on- and off-balance sheet items in arriving at total risk-weighted assets. Minimum capital levels are based upon the perceived risk of various asset categories and certain off-balance sheet instruments. Risk-weighted assets for the Corporation and Chemical Bank totaled $15.30 billion and $15.26 billion at September 30, 2018, respectively, compared to $14.74 billion and $14.70 billion at December 31, 2017, respectively.

Effective January 1, 2015, the Corporation adopted the Basel III regulatory capital framework as approved by federal banking agencies, which is subject to a multi-year phase-in period. The adoption of this new framework modified the calculation of the various capital ratios, added a new ratio, common equity tier 1, and revised the adequately and well capitalized thresholds. In addition, Basel III establishes a new capital conservation buffer of 2.5% of risk-weighted assets, which is phased-in over a four-year period beginning January 1, 2016. The capital conservation buffer for 2018 is 1.875% and was 1.25% for 2017. The Corporation has elected to opt-out of including accumulated other comprehensive income in common equity tier 1 capital.

At September 30, 2018 and December 31, 2017, Chemical Bank's capital ratios exceeded the quantitative capital ratios required for an institution to be considered "well-capitalized." Significant factors that may affect capital adequacy include, but are not limited to, a disproportionate growth in assets versus capital and a change in mix or credit quality of assets. There are no conditions or events since those calculations that management believes have changed the institutions' category.

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~The summary below compares the actual capital amounts and ratios with the quantitative measures established by regulation to ensure capital adequacy:~~

Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Capital Adequacy Purposes Plus Capital Conservation Buffer Required to be Well Capitalized Under Prompt Corrective Action Regulations
(Dollars in thousands)
Capital
Amount
Ratio
Capital
Amount
Ratio
Capital
Amount
Ratio
Capital
Amount
Ratio
September 30, 2018
Total Capital to Risk-Weighted Assets
Corporation $ 1,792,952
11.7 % $ 1,224,203
8.0 % $ 1,511,126
9.9 % N/A
N/A
Chemical Bank 1,766,477
11.6
1,221,170
8.0
1,507,382
9.9
$ 1,526,463
10.0 %
Tier 1 Capital to Risk-Weighted Assets
Corporation 1,665,786
10.9
918,153
6.0
1,208,901
7.9
N/A
N/A
Chemical Bank 1,655,164
10.8
915,878
6.0
1,202,089
7.9
1,221,170
8.0
Common Equity Tier 1 Capital to Risk-Weighted Assets
Corporation 1,665,786
10.9
688,614
4.5
975,537
6.4
N/A
N/A
Chemical Bank 1,655,164
10.8
686,908
4.5
973,120
6.4
992,201
6.5
Leverage Ratio
Corporation 1,665,786
8.6
771,041
4.0
771,041
4.0
N/A
N/A
Chemical Bank 1,655,164
8.6
769,726
4.0
769,726
4.0
962,157
5.0
December 31, 2017
Total Capital to Risk-Weighted Assets
Corporation $ 1,614,046
11.0 % $ 1,179,076
8.0 % $ 1,363,307
9.3 % N/A
N/A
Chemical Bank 1,613,087
11.0
1,176,361
8.0
1,360,167
9.3
$ 1,470,451
10.0 %
Tier 1 Capital to Risk-Weighted Assets
Corporation 1,498,463
10.2
884,307
6.0
1,068,538
7.3
N/A
N/A
Chemical Bank 1,513,219
10.3
882,271
6.0
1,066,077
7.3
1,176,361
8.0
Common Equity Tier 1 Capital to Risk-Weighted Asset
Corporation 1,498,463
10.2
663,230
4.5
847,461
5.8
N/A
N/A
Chemical Bank 1,513,219
10.3
661,703
4.5
845,509
5.8
955,793
6.5
Leverage Ratio
Corporation 1,498,463
8.3
720,890
4.0
720,890
4.0
N/A
N/A
Chemical Bank 1,513,219
8.4
720,043
4.0
720,043
4.0
900,053
5.0

On October 23, 2018, the Corporation declared a cash dividend on its common stock of $0.34 per share. The dividend will be paid on December 21, 2018 to shareholders of record as of December 7, 2018.

5654

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~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Note ~~17:~~23. Earnings Per Common Share

The ~~two-class method is used~~number of shares issued and outstanding, earnings per share, additional paid-in-capital and all references to share quantities of TCF have been retrospectively adjusted to reflect the equivalent number of shares issued in the ~~calculation~~Merger. The computations of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participating rights in undistributed earnings.

~~Average shares of common stock for diluted net income per~~ common share ~~include~~and the anti-dilutive shares to be issued upon the exercise of stock options granted under the Corporation’s share-based compensation plans, restricted stock units that may be converted to stock, restricted stock awards and stock to be issued under the deferred stock compensation plan for non-employee directors.

~~The factors used in the earnings per share computation follow:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2018 2017 2018 2017
Net income $ 70,397
$ 40,459
$ 210,981
$ 140,077
  Net income allocated to participating securities 40
129
144
566
Net income allocated to common shareholders ⁽¹⁾
$ 70,357
$ 40,330
$ 210,837
$ 139,511
Weighted average common shares - issued 71,426
71,139
71,365
71,077
  Average unvested restricted share awards (41 ) (228 ) (49 ) (290 )
Weighted average common shares outstanding - basic 71,385
70,911
71,316
70,787
Effect of dilutive securities
  Weighted average common stock equivalents 702
594
691
667
Weighted average common shares outstanding - diluted 72,087
71,505
72,007
71,454
EPS available to common shareholders
  Basic earnings per common share $ 0.99
$ 0.57
$ 2.96
$ 1.98
  Diluted earnings per common share $ 0.98
$ 0.56
$ 2.93
$ 1.95


⁽¹⁾	~~Net income allocated to common shareholders for basic and diluted earnings per share may differ under the two-class method as a result of adding common share equivalents for options to dilutive shares~~ outstanding ~~which alters the ratio used to allocate net income to common shareholders and participating securities for the purposes of calculating diluted earnings per share.~~

For effect of dilutive securities, the average stock valuation is $56.59 per share and $47.68 per share for the three months ended September 30, 2018 and 2017, respectively and $56.43 and $49.07 for the nine months ended September 30, 2018 and 2017, respectively.

~~The average number of exercisable employee stock options outstanding that were "out-of-the-money," whereby the option exercise price per share exceeded the market price per share and, therefore, were~~ not included in the computation of diluted earnings per ~~common~~ share because they would have been anti-dilutive totaled 58,882 and 63,014 for the three and nine months ended September 30, 2018, respectively, and 125,280 and 102,245 for the three and nine months ended September 30, 2017, respectively.

were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2019		2018		2019		2018
Basic earnings per common share
Net income attributable to TCF Financial Corporation	$	22,148	$	86,196	$	183,069	$	218,706
Preferred stock dividends	2,494		2,494		7,481		9,094
Impact of preferred stock redemption⁽¹⁾	—		—		—		3,481
Net income available to common shareholders	19,654		83,702		175,588		206,131
Less: Earnings allocated to participating securities	—		13		19		30
Earnings allocated to common stock	$	19,654	$	83,689	$	175,569	$	206,101
Weighted-average common shares outstanding used in basic earnings per common share calculation	128,575,171		83,762,625		97,876,262		84,522,519
Basic earnings per common share	$	0.15	$	1.00	$	1.79	$	2.44
Diluted earnings per common share
Earnings allocated to common stock	$	19,654	$	83,689	$	175,569	$	206,101
Weighted-average common shares outstanding used in basic earnings per common share calculation	128,575,171		83,762,625		97,876,262		84,522,519
Net dilutive effect of:
Non-participating restricted stock	73,698		—		139,795		—
Stock options	105,719		—		39,222		1,670
Warrants	—		45,438		—		266,935
Weighted-average common shares outstanding used in diluted earnings per common share calculation	128,754,588		83,808,063		98,055,279		84,791,124
Diluted earnings per common share	$	0.15	$	1.00	$	1.79	$	2.43
Anti-dilutive shares outstanding not included in the computation of diluted earnings per common share
Non-participating restricted stock	1,369,025		1,058,202		1,369,025		1,058,202

~~Chemical Financial Corporation~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

~~Note 18: Accumulated Other Comprehensive Loss~~

The following table summarizes the changes within each component of accumulated other comprehensive income (loss), net of related tax benefit/expense for the three and nine months ended September 30, 2018, and 2017:

(Dollars in thousands) Unrealized gains
(losses) on securities
available-for-sale,
net of tax Defined Benefit Pension Plans Unrealized gains (losses) on cash flow hedges, net of tax Total
For the three months ended September 30, 2018
Beginning balance $ (41,685 ) $ (19,584 ) $ 13,918
$ (47,351 )
Other comprehensive (loss) income before reclassifications (13,141 ) —
3,248
(9,893 )
Amounts reclassified from accumulated other comprehensive income (loss) —
112
(523 ) (411 )
Net current period other comprehensive (loss) income (13,141 ) 112
2,725
(10,304 )
Ending balance $ (54,826 ) $ (19,472 ) $ 16,643
$ (57,655 )
For the three months ended September 30, 2017
Beginning balance $ (8,877 ) $ (25,195 ) $ (57 ) $ (34,129 )
Other comprehensive income before reclassifications 895
7,305
520
8,720
Amounts reclassified from accumulated other comprehensive (loss) income (1 ) 349
231
579
Net current period other comprehensive income 894
7,654
751
9,299
Ending balance $ (7,983 ) $ (17,541 ) $ 694
$ (24,830 )
For the nine months ended September 30, 2018
Beginning balance $ (10,348 ) $ (19,808 ) $ 4,658
$ (25,498 )
Cumulative effect adjustment of change in accounting policy, net of tax impact⁽¹⁾
(344 ) —
3
(341 )
Beginning balance at January 1, 2018 (10,692 ) (19,808 ) 4,661
(25,839 )
Other comprehensive (loss) income before reclassifications (44,132 ) —
12,779
(31,353 )
Amounts reclassified from accumulated other comprehensive (loss) income (2 ) 336
(797 ) (463 )
Net current period other comprehensive (loss) income (44,134 ) 336
11,982
(31,816 )
Ending balance $ (54,826 ) $ (19,472 ) $ 16,643
$ (57,655 )
For the nine months ended September 30, 2017
Beginning balance $ (14,142 ) $ (25,894 ) $ —
$ (40,036 )
Other comprehensive income before reclassifications 6,268
7,305
54
13,627
Amounts reclassified from accumulated other comprehensive (loss) income (109 ) 1,048
640
1,579
Net current period other comprehensive income 6,159
8,353
694
15,206
Ending balance $ (7,983 ) $ (17,541 ) $ 694
$ (24,830 )


⁽¹⁾	~~Refer~~Represents the amount of deferred stock issuance costs originally recorded in preferred stock that were reclassified to ~~Note 1, Basis of Presentation and Significant Accounting Policies,~~ ~~Note 3, Investment Securities, and~~ ~~Note 9, Derivative Instruments and Balance Sheet Offsetting, for further details on the changes in accounting policy.~~ retained earnings.

Note 24. Other Noninterest Expense

Other noninterest expense was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2019		2018		2019		2018
Outside processing	$	12,084	$	5,052	$	23,475	$	15,936
Loan and lease expense	9,323		3,313		15,986		10,430
Professional fees	7,113		5,949		18,026		16,035
Advertising and marketing	7,101		7,674		19,229		22,075
FDIC insurance	6,298		4,376		11,708		12,165
Card processing and issuance costs	5,746		4,090		14,437		12,759
Consumer Financial Protection Bureau and OCC settlement charge	—		—		—		32,000
Other	40,111		25,231		91,920		79,908
Total other noninterest expense	$	87,776	$	55,685	$	194,781	$	201,308

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Note 25. Reportable Segments

TCF's reportable segments are Consumer Banking, Commercial Banking and Enterprise Services. Consumer Banking is comprised of all of TCF's consumer-facing businesses and includes retail banking, consumer lending, wealth management and small business banking. Commercial Banking, previously named Wholesale Banking, is comprised of commercial and industrial and commercial real estate banking and lease financing. 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.

In connection with the Merger, effective August 1, 2019, TCF renamed its Wholesale Banking segment to Commercial Banking to align with the way TCF is now managed. In addition, activity that was related to small business banking and private banking were moved from the Wholesale Banking (now named Commercial Banking) segment to the Consumer Banking segment. The revised presentation of previously reported segment data has been applied retroactively to all periods presented in these financial statements.

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.

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



(In thousands)	Consumer Banking			Commercial Banking		Enterprise Services			Consolidated
At or For the Three Months Ended September 30, 2019
Net interest income (expense)	$	191,940		$	157,437	$	22,416		$	371,793
Provision for credit losses	4,489			22,699		—			27,188
Net interest income (expense) after provision for credit losses	187,451			134,738		22,416			344,605
Noninterest income	57,102			47,929		(10,773		)	94,258
Noninterest expense	210,728			102,841		112,051			425,620
Income tax expense (benefit)	6,817			8,172		(26,724		)	(11,735		)
Income (loss) after income tax expense (benefit)	27,008			71,654		(73,684		)	24,978
Income attributable to non-controlling interest	—			2,830		—			2,830
Preferred stock dividends	—			—		2,494			2,494
Net income (loss) available to common shareholders	$	27,008		$	68,824	$	(76,178	)	$	19,654
Total assets⁽¹⁾	$	14,906,457		$	22,076,203	$	8,709,851		$	45,692,511
At or For the Three Months Ended September 30, 2018
Net interest income (expense)	$	143,015		$	94,252	$	16,235		$	253,502
Provision (benefit) for credit losses	(953		)	3,223		—			2,270
Net interest income (expense) after provision for credit losses	143,968			91,029		16,235			251,232
Noninterest income	66,621			44,934		509			112,064
Noninterest expense	162,034			77,863		6,526			246,423
Income tax expense (benefit)	11,613			12,813		3,608			28,034
Income (loss) after income tax expense (benefit)	36,942			45,287		6,610			88,839
Income attributable to non-controlling interest	—			2,643		—			2,643
Preferred stock dividends	—			—		2,494			2,494
Net income (loss) available to common shareholders	$	36,942		$	42,644	$	4,116		$	83,702
Total assets	$	8,226,522		$	11,553,453	$	3,124,810		$	22,904,785


(1)	As a result of the Merger, we recorded $1.1 billion of goodwill. Due to the timing of the Merger, we are in the process of completing our analysis of the allocation of goodwill across business segments, and, therefore, goodwill is presented as part of Enterprise Services at September 30, 2019.

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(In thousands)	Consumer Banking		Commercial Banking		Enterprise Services			Consolidated
At or For the Nine Months Ended September 30, 2019
Net interest income (expense)	$	470,738	$	350,848	$	58,693		$	880,279
Provision for credit losses	16,406		34,473		—			50,879
Net interest income (expense) after provision for credit losses	454,332		316,375		58,693			829,400
Noninterest income	183,767		132,883		(9,170		)	307,480
Noninterest expense	520,007		267,147		128,390			915,544
Income tax expense (benefit)	26,529		30,271		(27,934		)	28,866
Income (loss) after income tax expense (benefit)	91,563		151,840		(50,933		)	192,470
Income attributable to non-controlling interest	—		9,401		—			9,401
Preferred stock dividends	—		—		7,481			7,481
Net income (loss) available to common shareholders	$	91,563	$	142,439	$	(58,414	)	$	175,588
Total assets	$	14,906,457	$	22,076,203	$	8,709,851		$	45,692,511
At or For the Nine Months Ended September 30, 2018
Net interest income (expense)	$	429,132	$	289,315	$	36,895		$	755,342
Provision for credit losses	18,900		8,974		—			27,874
Net interest income (expense) after provision for credit losses	410,232		280,341		36,895			727,468
Total noninterest income	196,827		132,794		908			330,529
Total noninterest expense	511,915		229,094		23,433			764,442
Income tax expense (benefit)	23,037		40,505		2,541			66,083
Income (loss) after income tax expense (benefit)	72,107		143,536		11,829			227,472
Income attributable to non-controlling interest	—		8,766		—			8,766
Preferred stock dividends	—		—		9,094			9,094
Impact of preferred stock redemption	—		—		3,481			3,481
Net income (loss) available to common shareholders	$	72,107	$	134,770	$	(746	)	$	206,131
Total assets	$	8,226,522	$	11,553,453	$	3,124,810		$	22,904,785

Note 26. Commitments, Contingent Liabilities and Guarantees

Financial Instruments with Off-Balance Sheet Risk In the normal course of business, TCF enters into financial instruments with off-balance sheet risk, primarily to meet the financing needs of its customers. These financial instruments, which are issued or held for purposes other than trading, involve elements of credit and interest-rate risk in excess of the amounts recognized in the Consolidated Statements of Financial Condition.

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

Financial instruments with off-balance sheet risk were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Commitments to extend credit:
Commercial	$	5,269,843	$	1,280,707
Consumer	2,266,913		1,627,960
Total commitments to extend credit	7,536,756		2,908,667
Standby letters of credit and guarantees on industrial revenue bonds	125,438		20,662
Total	$	7,662,194	$	2,929,329

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

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Standby Letters of Credit and Guarantees on Industrial Revenue Bonds Standby letters of credit and guarantees on industrial revenue bonds are conditional commitments issued by TCF guaranteeing the performance of a customer to a third party. These conditional commitments expire in various years through 2039. The majority of these standby letters of credit are collateralized. Collateral held consists primarily of commercial real estate mortgages. Since the conditions under which TCF is required to fund these commitments may not materialize, the cash requirements are expected to be less than the total outstanding commitments.

Contingencies and Guarantees TCF has originated and sold certain loans, and additionally acquired the potential liability for those historical originated and sold loans by merged or acquired entities, for which the buyer has limited recourse to us in the event the loans do not perform as specified in the agreements. The outstanding balance and the maximum potential amount of undiscounted future payments that TCF could be required to make in the event of nonperformance by the borrower totaled $0.7 million at September 30, 2019. In the event of nonperformance, TCF has rights to the underlying collateral securing the loans. At September 30, 2019, TCF had recorded a liability of $0.1 million, in connection with the recourse agreements, in other liabilities.

In addition, TCF acquired certain Small Business Administration ("SBA") guaranteed loans in which the guaranteed portion had been sold to a third party investor. In the event these loans default and the SBA guaranty is no longer intact (i.e. an issue found to have occurred during the origination or the liquidation of the loans) TCF would be liable to make the loan whole to the third party investor. The maximum potential amount of undiscounted future payments that TCF could be required to make in the event of default by the borrower was $17.6 million at September 30, 2019. In the event of default, TCF has rights to the underlying collateral securing the loans. At September 30, 2019, TCF had recorded a liability of $0.9 million, in other liabilities.

Representations, Warranties and Contractual Liabilities In connection with TCF's residential mortgage loan sales, and the historical sales of merged or acquired entities, TCF makes certain representations and warranties that the loans meet certain criteria, such as collateral type, underwriting standards and the manner in which the loans will be serviced. TCF may be required to repurchase individual loans and/or indemnify the purchaser against losses if the loan fails to meet established criteria. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower or the failure to obtain valid title. At September 30, 2019 and December 31, 2018 the liability recorded in connection with these representations and warranties was $4.0 million and $1.3 million, respectively, included in other liabilities.

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.

~~Chemical Financial Corporation~~

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~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2018~~

Note 27. Parent Company Financial Information

~~The following table summarizes the amounts reclassified out~~

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

Condensed Statements of ~~accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2018, and 2017:~~Financial Condition



(In thousands)	September 30, 2019		December 31, 2018
Assets
Cash and cash equivalents	$	165,457	$	91,132
Premises and equipment, net	3,883		78
Deferred tax asset	13,485		2,974
Investment in TCF Bank	5,483,484		2,426,329
Accounts receivable from TCF Bank	19,849		23,780
Other assets	25,823		1,201
Total assets	$	5,711,981	$	2,545,494
Liabilities and Equity
Long term borrowings	$	19,005	$	—
Other liabilities	22,872		7,693
Total liabilities	41,877		7,693
Equity	5,670,104		2,537,801
Total liabilities and equity	$	5,711,981	$	2,545,494

Condensed Statements of Income



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2019			2018		2019			2018
Interest income	$	89		$	48	$	166		160
Interest expense	199			—		199			—
Net interest income	(110		)	48		(33		)	160
Noninterest income
Dividends from TCF Bank	—			32,001		150,001			331,000
Management fees	—			—		—			—
Other	1,979			5,383		8,742			14,352
Total noninterest income	1,979			37,384		158,743			345,352
Noninterest expense
Compensation and employee benefits	4,838			4,739		12,255			15,320
Occupancy and equipment	141			82		296			220
Other	1,675			1,420		3,689			4,186
Total noninterest expense	6,654			6,241		16,240			19,726
Income (loss) before income tax benefit and equity in undistributed earnings (loss) of TCF Bank	(58,744		)	31,191		77,970			325,786
Income tax benefit	11,409			116		14,572			1,633
Income before equity in undistributed earnings (loss) of TCF Bank	(47,335		)	31,307		92,542			327,419
Equity in undistributed earnings (loss) of TCF Bank	69,483			54,892		90,527			(108,713		)
Net income	22,148			86,199		183,069			218,706
Preferred stock dividends	2,494			2,493		7,482			12,574
Impact of preferred stock redemption	—			—		—			—
Net income available to common shareholders	$	19,654		$	83,706	$	175,587		$	206,132

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(Dollars in thousands) Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) Affected Line Item in the Income Statement
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Gains on available-for-sale securities $ —
$ 1
$ 3
$ 168
Net gain on sale of investment securities (noninterest income)
—
—
(1 ) (59 ) Income tax expense
$ —
$ 1
$ 2
$ 109
Net Income
Amortization of defined benefit pension plan items $ 142
$ 537
$ 426
$ 1,613
Salaries, wages and employee benefits (operating expenses)
(30 ) (188 ) (90 ) (565 ) Income tax benefit
$ 112
$ 349
336
$ 1,048
Net Loss
Gains and losses on cash flow hedges $ (662 ) $ 575
$ (1,009 ) $ 984
Interest on short-term borrowings (interest expense)
139
(344 ) 212
(344 ) Income tax expense (benefit)
$ (523 ) $ 231
$ (797 ) $ 640
Net (Income)/Loss

Condensed Statements of Cash Flows



	Nine Months Ended September 30,
(In thousands)	2019			2018
Cash flows from operating activities
Net income	$	183,069		$	218,706
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed (earnings) loss of TCF Bank	(90,527		)	108,713
Share-based compensation expense	17,762			14,041
Depreciation and amortization	99			26
Provision (benefit) for deferred income taxes	14			—
Net (losses) gains on sales of assets	(8		)	(387		)
Net change in other assets	(887		)	975
Net change in other liabilities	(13,104		)	(374		)
Other, net	(2,756		)	(100		)
Net cash provided by (used in) operating activities	93,662			341,600
Cash flows from investing activities
Purchases of premises and equipment and lease equipment	(51		)	(3		)
Proceeds from sales of premises and equipment	28			17
Net cash acquired in business combination	155,154			—
Other, net	—			665
Net cash provided by (used in) investing activities	155,131			679
Cash flows from financing activities
Redemption of Series B preferred stock	—			(100,000		)
Repurchases of common stock	(58,805		)	(149,912		)
Common shares sold to TCF employee benefit plans	—			715
Dividends paid on preferred stock	(7,482		)	(9,094		)
Dividends paid on common stock	(102,368		)	(74,916		)
Payments related to tax-withholding upon conversion of share-based awards	(5,813		)	(6,563		)
Exercise of stock options	—			(998		)
Net cash provided by (used in) financing activities	(174,468		)	(340,768		)
Net change in cash and cash equivalents	74,325			1,511
Cash and cash equivalents at beginning of period	91,132			80,471
Cash and cash equivalents at end of period	$	165,457		$	81,982

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

Forward-looking Information

Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for our businesses and our respective markets, such as projections of future performance, targets, guidance, statements regarding our plans and objectives, forecasts of market trends and other matters are forward-looking statements based on our assumptions and beliefs. Such statements may be identified by such words or phrases as “will,” “believe,” “expect,” "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, except as required by law.

Certain factors could cause our future results to differ materially from those expressed or implied in any forward-looking statements contained herein. These factors include the factors discussed in Item 1A. in each of TCF’s and Legacy TCF’s Annual Reports on Form 10-K for the year ended December 31, 2018, and in TCF’s other SEC filings, including the Joint Proxy Statement/Prospectus regarding the Merger that TCF filed with the SEC on May 3, 2019 pursuant to Rule 424(b)(3), 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 our business operations or damage our reputation; fluctuation in interest rates that result in decreases in the value of assets or a mismatch between yields earned on our interest-earning assets and the rates paid on our 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 our branches, including supermarket branches; risks related to developing new products, markets or lines of business; the possible unavailability of LIBOR as a published benchmark rate and the potential uncertainties it could create for market participants, including TCF; changes in the allowance for loan and lease losses dictated by new market conditions, regulatory requirements or accounting standards, including CECL; 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 our 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 our 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 our 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; risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others; ineffective internal controls; the effects of man-made and natural disasters, any of which may negatively affect our operations and/or our customers; 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 does 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 as a result of the Merger; potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the Merger; the integration of the businesses and operations of Legacy TCF and Chemical may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to our businesses; business disruptions resulting from the Merger; and the potential impact of the Merger on relationships with third parties, including customers, vendors, employees and competitors.

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Overview

On August 1, 2019 (the "Merger Date"), TCF Financial Corporation, a Delaware corporation ("Legacy TCF"), merged with and into Chemical Financial Corporation, a Michigan corporation ("Chemical"), with Chemical continuing as the surviving corporation (the "Merger"). Immediately following the Merger, Chemical’s wholly owned bank subsidiary, Chemical Bank, a Michigan state-chartered bank, merged with and into Legacy TCF’s wholly owned bank subsidiary, TCF National Bank, a national banking association, with TCF National Bank surviving the merger (“TCF Bank”). Upon completion of the Merger, Chemical was renamed TCF Financial Corporation. TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Corporation"), is a financial holding company, headquartered in Detroit, Michigan. TCF Bank with its main office in Sioux Falls, South Dakota. References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis.

The Merger was accounted for as a reverse merger using the acquisition method of accounting, which means that for accounting and financial reporting purposes, Legacy TCF was deemed to have acquired Chemical in the Merger, even though Chemical was the legal acquirer. Accordingly, Legacy TCF's historical financial statements are the historical financial statements of the combined company for all periods before the Merger Date. Our results of operations for the third quarter of 2019 and the first nine months of 2019 include the results of operations of Chemical on and after August 1, 2019. Results for periods before August 1, 2019 reflect only those of Legacy TCF and do not include the results of operations of Chemical. Accordingly, comparisons of our results for the third quarter of 2019 and the first nine months of 2019 with those of prior periods may not be meaningful. The number of shares issued and outstanding, earnings per share, additional paid-in-capital and all references to share quantities of TCF have been retrospectively adjusted to reflect the equivalent number of shares issued in the Merger. See Note 2. Merger of the Notes to Consolidated Financial Statements for further information. In addition, the assets, including the intangible assets identified, and liabilities of Chemical as of the Merger Date have been recorded at their estimated fair value and added to those of Legacy TCF.

As of September 30, 2019, TCF had more than 500 branches primarily located in Michigan, Illinois and Minnesota with additional locations in Arizona, Colorado, Indiana, Ohio, South Dakota and Wisconsin. TCF also conducts business across all 50 states and Canada through its specialty lending and leasing businesses. Through its direct subsidiaries, TCF provides consumer and commercial banking, trust and wealth management, and specialty leasing and lending products and services to consumers, small businesses and commercial customers.

Net interest income, the difference between interest income earned on loans and leases, investments securities and other earning assets (interest income) and interest paid on deposits and borrowings (interest expense), represented 79.8% and 74.1% of our total revenue for the three and nine months ended September 30, 2019, respectively, compared with 69.3% and 69.6% 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, noninterest-bearing deposits and interest-bearing liabilities. We manage the risk of changes in interest rates on our net interest income through TCF's 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.

Noninterest income is a significant source of our revenue and an important component of our results of operations. The significant components of noninterest income are from leasing revenue, fees and service charges on deposit accounts and card and ATM revenue. Leasing revenue generates noninterest income primarily from operating and sales-type leases. Providing a wide range of consumer banking services is an integral component of our 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.

The following ~~is management's discussion~~portions of this Management's Discussion and ~~analysis~~Analysis of ~~certain significant factors that have affected our financial condition~~Financial Condition and Results of Operations ("Management's Discussion and Analysis") focus in more detail on the results of operations ~~during~~for the ~~periods included in the Consolidated Financial Statements included in this report.~~three and nine months ended September 30, 2019 and 2018 and on information about TCF's financial condition, loan and lease portfolio, liquidity management, capital and other matters. This discussion should be read in conjunction with ~~our~~the Consolidated Financial Statements and accompanying ~~footnotes~~notes appearing in this report and in conjunction with the ~~financial statements~~Consolidated Financial Statements and related notes and disclosures in ~~our 2017~~the Legacy TCF 2018 Annual Report on Form ~~10-K.~~10-K filed as Exhibit 99.1 to TCF’s Current Report on Form 8-K filed with the SEC on August 1, 2019.

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LIBOR Transition

In ~~this report, unless~~2017, the ~~context suggests otherwise, references~~U.K. Financial Conduct Authority (the “FCA”) noted that market conditions raised serious questions about the future sustainability of LIBOR benchmarks. Many financial products, including mortgages and other consumer loans, commercial loans, corporate loans, various types of debt, derivatives and other securities, reference LIBOR to determine their applicable interest rate. The expected cessation of publication of LIBOR will impact the ~~"Corporation," "we," "us,"~~mechanics of floating rate financial instruments and ~~"our" mean the combined business~~contracts that reference LIBOR and mature after 2021. Certain of ~~Chemical Financial Corporation~~these financial products do not provide for alternative reference rates, and ~~its subsidiary bank, Chemical Bank (the "Bank").~~

~~We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business~~those that ~~are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results~~do may differ ~~materially~~ from ~~those contained in these forward-looking statements. For additional information regarding our cautionary disclosure, see~~ the ~~"Cautionary Note Regarding Forward-Looking Statements"~~ ~~on page 3~~prior benchmark rates. The FCA subsequently announced that it had secured voluntary panel bank support of ~~this report.~~

~~Business Overview~~

~~Chemical Financial Corporation is~~LIBOR through only 2021. As a financial holding company headquartered in Detroit, Michigan, that was incorporated in the State of Michigan in August 1973. We relocated our headquarters from Midland, Michigan to Detroit, Michigan effective July 25, 2018. Our common stock is listed on the NASDAQ under the symbol "CHFC." On June 30, 1974, we acquired Chemical Bank and Trust Company pursuant to a reorganization in which the former shareholders of Chemical Bank and Trust Company became shareholders of the Corporation. We changed the name of Chemical Bank and Trust Company to Chemical Bank on December 31, 2005. At September 30, 2018, we had consolidated total assets of $20.91 billion, total loans of $14.80 billion, total deposits of $15.44 billion and total shareholders' equity of $2.79 billion, respectively.

~~Since our acquisition of Chemical Bank and Trust Company, we have acquired 25 community~~result, central banks and ~~36 other branch bank offices through September 30, 2018. Our most recent transactions include our merger~~regulators have convened working groups to find a suitable replacement index for LIBOR, and TCF is working to identify, assess and monitor risks associated with ~~Talmer Bancorp, Inc. ("Talmer") during~~ the ~~third quarter~~expected discontinuation or unavailability of ~~2016,~~LIBOR, achieve operational readiness and ~~our acquisitions of Lake Michigan Financial Corporation ("Lake Michigan") and Monarch Community Bancorp, Inc. ("Monarch") during the second quarter of 2015.~~

Our business is concentrated in a single industry segment, commercial banking, which is conducted through our single commercial bank subsidiary, Chemical Bank. We offer a full range of traditional banking and fiduciary products and services to residents and businessengage impacted customers in our geographical market areas. These products and services include business and personal checking accounts, savings and individual retirement accounts, time deposit instruments, electronically accessed banking products, residential and commercial real estate financing, commercial lending, consumer financing, debit cards, safe deposit box services, money transfer services, automated teller machines, access to insurance and investment products, corporate and personal wealth management services, mortgage banking and other banking services. Chemical Bank operated through an internal organizational structure of six regional banking units, organized by geography, as of September 30, 2018. In addition, we own, directly or indirectly, various non-bank operating and non-operating subsidiaries.connection with the transition.

Critical Accounting ~~Policies~~Estimates

~~Our~~TCF's Consolidated Financial Statements are prepared in accordance with United States generally accepted accounting principles ("GAAP"), Securities and Exchange Commission ("SEC") rules and interpretive releases and general practices within the industry in which we operate. Application of these principles requires management to make estimates, assumptions and complex judgments that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, our Consolidated Financial Statements could reflect different estimates, assumptions and judgments. Actual results could differ significantly from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We ~~utilize~~use third-party sources to assist us with developing certain estimates, assumptions and judgments regarding certain amounts reported in our Consolidated Financial Statements and accompanying notes. When using third-party sources, ~~are utilized, our~~ management remains responsible for complying with GAAP. To execute management's responsibilities, we have processes in place to develop an understanding of the third-party methodologies and to design and implement specific internal controls over valuation.

As a result of the Merger, we have updated our critical accounting estimates. We have identified the determination of the allowance for loan and lease losses, accounting for ~~acquired loans, income and other taxes~~business combinations (including fair value of purchased loans), and the ~~valuation~~evaluation of ~~loan servicing rights~~goodwill impairment to be the accounting areas that require the most subjective or complex judgments

and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider them to be critical accounting ~~policies~~estimates and discuss them directly with the Audit Committee of ~~the~~our board of directors.

Our significant accounting ~~policies are~~estimates related to the allowance for loan and lease losses is more fully described in Note 12 to the Legacy TCF audited Consolidated Financial Statements ~~contained in our Annual Report on Form 10-K~~and notes thereto at and for the year ended December 31, 2017, and the more significant assumptions and estimates made by us are more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in our Annual2018, filed as Exhibit 99.1 to TCF's Current Report on Form ~~10-K~~8-K filed with the SEC on August 1, 2019.

Updates to Critical Accounting Estimates

Accounting for Business Combinations

Pursuant to the ~~year ended~~guidance of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, Business Combinations ("ASC 805"), we recognize assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date, with the merger-related transaction costs expensed in the period incurred. Determining the fair value of assets acquired, including identified intangible assets, and liabilities assumed often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors. In addition, the determination of the useful lives over which an intangible asset will be amortized is subjective.

Accounting for Loans Acquired in a Business Combination

We record loans and leases acquired in a business combination at fair value at the acquisition date and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. Credit

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discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Purchased loans are evaluated at the acquisition date and classified as either (i) loans purchased without evidence of deteriorated credit quality since origination, referred to as purchased loans, or (ii) loans purchased with evidence of deteriorated credit quality since origination for which it is probable that all contractually required payments will not be collected, referred to as purchased credit impaired (“PCI”) loans.

PCI loans are considered to be impaired and are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). In determining whether a purchased loan should be classified as a PCI loan, we must make numerous assumptions, interpretations and judgments using internal and third-party credit quality information to determine whether or not it is probable that we will be able to collect all contractually required payments. This is a point in time assessment and is inherently subjective due to the nature of the available information and judgment involved. Evidence of credit quality deterioration as of the acquisition date may include statistics such as past due and nonaccrual status, recent borrower credit scores and loan-to-value percentages. The excess of cash flows expected to be collected over the estimated fair value of PCI loans is referred to as the accretable yield and is accreted into interest income over the estimated remaining life of the loan using the effective yield method. We estimate the expected cash flows based on the expected remaining life of the loans, which includes the effects of estimated prepayments and estimates of future credit losses. Cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, is referred to as the nonaccretable difference.

We do not classify PCI loans as nonperforming loans subsequent to acquisition because the loans are recorded at net realizable value based on the principal and interest expected to be collected on the loan. Judgment is required to estimate the timing and amount of cash flows expected to be collected when the loans are not performing in accordance with the original contractual terms.

Goodwill

Goodwill represents the excess of the purchase price of our business acquisition and other purchases of bank branches and other businesses over the fair value of the net assets acquired. Goodwill totaled $1.3 billion at September 30, 2019, compared with $154.8 million at December 31, ~~2017. There were no material changes to our significant accounting policies or the estimates made pursuant to those policies during the most recent quarter.~~

~~Branch Consolidation~~

~~On September 7, 2017, we initiated a restructuring effort that included the consolidation of 25 branch offices~~2018. The increase in ~~the fourth quarter of 2017. These branch consolidations were in addition to 13 branches consolidated during the third quarter of 2017. At September 30, 2018, we operated a total of 212 branches.~~

~~Accounting Standards Updates~~

~~See~~ ~~Note 1~~ ~~to our Consolidated Financial Statements included in this report for details of the accounting pronouncements adopted~~goodwill during the nine months ended September 30, ~~2018~~2019 was due to the Merger. Goodwill is not amortized, but rather is tested by management annually for impairment, or more frequently if triggering events occur and indicate potential impairment, in accordance with ASC Topic 350-20, Goodwill (ASC 350-20). ASC 350-20 allows an entity to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. ASC 350-20 also allows an entity to bypass the qualitative assessment approach and determine if goodwill is impaired utilizing a quantitative assessment approach.

In evaluating whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, we assess relevant events and circumstances, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in the composition or carrying amount of assets and liabilities, the market price of our common stock, and other relevant factors. TCF has historically performed its annual assessment as of December 31^st. As a result of its Merger, TCF has elected to perform its annual test in the fourth quarter utilizing September 30^th financial data. The change in assessment date is not material to the financial statements and allows management more time to perform the analysis of the significant goodwill generated as a result of the merger. We do not believe that any events or circumstances changed as of September 30, 2019 that would indicate that is it more likely than not that the fair value of a reporting unit is less than its carrying amount. However, we could incur impairment charges related to goodwill in the future due to changes in financial results or other matters that could affect the fair value of our reporting units.

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Selected Financial Data

The following table provides our selected financial information for the periods and at the dates indicated. This information should be read together with our Consolidated Financial Statements and the ~~year ended December 31, 2017. See~~related notes thereto, which are included elsewhere in this report. Our financial results were significantly impacted by the Merger, and periods before the Merger reflect financial data of Legacy TCF, while periods after the Merger reflect financial data for the combined company. Earnings per share and share quantities of TCF have been retrospectively adjusted to reflect the equivalent number of shares issued in the Merger. As noted in the following ~~section for a description of pronouncements that have been released but~~table, we have ~~not yet adopted~~included certain non-GAAP financial measures, which should be read in conjunction with the section entitled "Non-GAAP Financial Measures" and the ~~expected impact~~accompanying table entitled "Reconciliation of ~~such pronouncements on our~~Non-GAAP Operating Results," for reconciliation of non-GAAP measures to the most directly comparable GAAP financial ~~statements.~~

~~Pending Accounting Pronouncements~~



~~Standard~~	~~Description~~	~~Required Adoption Date~~	~~Expected impact on the financial statements~~
~~ASU No. 2016-02 - Leases (Topic 842)~~ ~~ASU No. 2018-01 - Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842~~ ~~ASU No. 2018-10 - Codification Improvements to Topic 842, Leases~~ ~~ASU No. 2018-11 - Leases (Topic 842) Targeted Improvements~~	In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU), No. 2016-02, which requires lessees to recognize leases on-balance sheet, lessors to classify leases as sales-type, direct financing, or operating, and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. This guidance provides that lessees will be required to recognize the following for all operating leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use (ROU) asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lase term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ~~Upon adoption, a modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.~~	~~January 1, 2019, early adoption permitted.~~ ~~We expect to adopt the guidance using the election not to recast comparative periods presented and record a cumulative-effect adjustment to retained earnings on the date of adoption.~~	The adoption is not expected to have a material impact on our results of operations, but is anticipated to result in a material increase in our assets and liabilities. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our land and building operating leases and (2) providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities between now and adoption. We are currently implementing a third-party vendor solution to assist us in the application of ASU 2016-02 and believe substantially all of our leases will continue to be classified as operating leases under the new standard. The new standard provides a number of optional practical expedients in transition including the ‘package of practical expedients’ which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs, an expedient for the election of the use-of-hindsight or land easements, an expedient for the entity’s ongoing accounting such as the short-term lease recognition and measurement exemption as well as the non-separation of lease and non-lease components practical expedient. We are still evaluating the election of these expedients.

measure. Historical data is not necessarily indicative of TCF's future results of operations or financial condition.



~~Standard~~	~~Description~~	~~Required Adoption Date~~	~~Expected impact on the financial statements~~
~~ASU No. 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~	This standard requires financial assets to be measured at net of amortized cost and a credit loss allowance. The measurement of expected credit loss should be based on relevant information about past events, current conditions, and reasonable forecasts. The standard also eliminates the probable recognition threshold for credit losses of financial assets measured at amortized cost. Additionally, an allowance will be recognized for purchased credit-deteriorated assets though a gross-up approach measuring the amortized cost as the sum of purchase price and estimated credit loss at the acquisition date. Adjustments in allowance will be recognized immediately in earnings. The new required disclosures include: (a) how an entity developed its allowance for financial assets measured at amortized cost, (b) information about the credit quality for financial receivable and net investments in leases measured at amortized cost, and (c) an allowance roll-forward for available-for-sale securities and an aging analysis for securities past due.	~~January 1, 2020, early adoption permitted as of January 1, 2019~~	Upon adoption, a cumulative-effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective. The adjustment to our credit loss allowance upon adoption will be impacted by each portfolio's composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. We have selected a software program and identified and gathered the required data. In the fourth quarter of 2018 and into the first quarter of 2019, we will develop and refine multiple scenarios, identify portfolio segmentation and run parallel analysis with our current credit loss model.
~~ASU No. 2017-04, Intangible - Goodwill and Other (Topic 350)~~	Accounting for goodwill impairment is simplified by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Subsequent to the adoption, goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance largely remains unchanged.	~~January 1, 2020, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~
~~ASU No. 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960)~~	This update clarifies the reporting requirements by an employee benefit plan for its interest in a master trust and removes redundancy relating to 401(h) account disclosures. The amendment requires a plan's interest in a master trust to be presented in separate line items in the statement of net assets available and in the statement of changes in net assets available. Additionally, the requirement to disclose the percentage interest in the master trust is removed and replaced by the required disclosure of the dollar amount of interest in each investment type.	~~January 1, 2019, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~
~~ASU No. 2018-07, Compensation-Stock Compensation (Topic 718)~~	This update expands the scope of stock compensation requirements to include share-based payment transaction for acquiring goods and services from nonemployees. The amendment requires that nonemployee share-based payment awards meet the accounting requirements of employee share-based payment awards.	~~January 1, 2019, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~
~~ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made~~	The update clarifies the scope and the accounting guidance for contributions received and contributions made. The guidance clarifies the criteria on determining whether a contribution is conditional or unconditional.	~~January 1, 2019, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~
~~ASU No. 2018-09, Codification Improvements~~	~~This update clarifies and makes minor improvements to the current codification. The amendments are made to a number of subtopics in order to allow for clearer understanding of the codification.~~	~~January 1, 2019, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~



~~Standard~~	~~Description~~	~~Required Adoption Date~~	~~Expected impact on the financial statements~~
~~ASU 2018-13, Fair Value Measurement (Topic 820): Disclose Framework-Changes to the Disclosure Requirements for Fair Value Measurement~~	The amendments in this update improves the effectiveness of fair value measurement disclosures and modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement based on the concepts in the Concept Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, including considerations of costs and benefits. The additional disclosure requirements include disclosing the change in unrealized gains(losses) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements or other quantitative information. The update also removes the disclosure requirements for: the amount of and reasons for transfers between Level 1 and Level 2 hierarchies, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements.	~~January 1, 2020, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~
~~ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans~~	The amendments in this update remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant based on the concepts in the Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements.	~~January 1, 2021, early adoption permitted~~	~~Adoption is not expected to have a material impact on our consolidated financial condition or results of operations.~~

~~Chemical Financial Corporation~~

~~Selected Financial Information~~

~~(Unaudited)~~

Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30,
2018 June 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
Summary of Operations
Interest income $ 198,377
$ 189,582
$ 164,944
$ 565,893
$ 462,973
Interest expense 38,896
32,045
21,316
97,012
51,300
Net interest income 159,481
157,537
143,628
468,881
411,673
Provision for loan losses 6,028
9,572
5,499
21,856
15,778
Net interest income after provision for loan losses 153,453
147,965
138,129
447,025
395,895
Noninterest income 37,917
38,018
32,122
116,489
111,700
Operating expenses, core (non-GAAP)⁽¹⁾⁽²⁾
106,499
102,845
95,241
309,320
293,042
Merger and restructuring expenses —
—
21,203
—
25,835
Impairment of income tax credits 3,162
1,716
3,095
6,512
3,095
Income before income taxes 81,709
81,422
50,712
247,682
185,623
Income tax expense 11,312
12,434
10,253
36,701
45,546
Net income $ 70,397
$ 68,988
$ 40,459
$ 210,981
$ 140,077
Significant items, net of tax (non-GAAP)⁽¹⁾⁽³⁾
—
—
13,782
—
16,793
Net income, excluding significant items (non-GAAP)⁽¹⁾⁽³⁾
$ 70,397
$ 68,988
$ 54,241
$ 210,981
$ 156,870

Per Common Share Data

Net income:

Basic $ 0.99
$ 0.97
$ 0.57
$ 2.96
$ 1.98
Diluted 0.98
0.96
0.56
2.93
1.95
Diluted, excluding significant items (non-GAAP)⁽¹⁾⁽³⁾
0.98
0.96
0.76
2.93
2.19
Cash dividends declared 0.34
0.28
0.28
0.90
0.82
Book value at end of period 39.04
38.52
37.57
39.04
37.57
Tangible book value per share at end of period (non-GAAP)⁽¹⁾
22.87
22.33
21.36
22.87
21.36
Market value at end of period 53.40
55.67
52.26
53.40
52.26

Key Ratios (annualized where applicable)

Net interest margin 3.42 % 3.54 % 3.40 % 3.49 % 3.40 %
Net interest margin (fully taxable equivalent) (non-GAAP)⁽¹⁾⁽⁴⁾
3.48 % 3.59 % 3.48 % 3.54 % 3.48 %
Efficiency ratio (GAAP) 55.6 % 53.5 % 68.0 % 54.0 % 61.5 %
Efficiency ratio-adjusted (non-GAAP)⁽¹⁾
52.8 % 51.2 % 51.2 % 51.9 % 53.5 %
Return on average assets 1.37 % 1.39 % 0.86 % 1.41 % 1.03 %
Return on average assets, excluding significant items (non-GAAP)⁽¹⁾⁽³⁾
1.37 % 1.39 % 1.15 % 1.41 % 1.15 %
Return on average shareholders' equity 10.2 % 10.2 % 6.1 % 10.3 % 7.2 %
Return on average tangible shareholders' equity (non-GAAP)⁽¹⁾
17.5 % 17.8 % 10.9 % 18.0 % 12.8 %
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)⁽¹⁾⁽³⁾
17.5 % 17.8 % 14.6 % 18.0 % 14.4 %
Average shareholders' equity as a percent of average assets 13.5 % 13.6 % 14.0 % 13.6 % 14.3 %
Capital ratios (period end):
Tangible shareholders' equity as a percent of tangible assets (non-GAAP)⁽¹⁾
8.3 % 8.3 % 8.3 % 8.3 % 8.3 %
Total risk-based capital ratio 11.7 % 11.4 % 11.2 % 11.7 % 11.2 %



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2019			2018			2019			2018
Consolidated Income:
Interest income	$	459,808		$	291,707		$	1,077,483		$	861,420
Interest expense	88,015			38,205			197,204			106,078
Net interest income	371,793			253,502			880,279			755,342
Noninterest income	94,258			112,064			307,480			330,529
Total revenue	466,051			365,566			1,187,759			1,085,871
Provision for credit losses	27,188			2,270			50,879			27,874
Noninterest expense	425,620			246,423			915,544			764,442
Income before income tax expense	13,243			116,873			221,336			293,555
Income tax (benefit) expense	(11,735		)	28,034			28,866			66,083
Income attributable to non-controlling interest	2,830			2,643			9,401			8,766
Net income attributable to TCF	22,148			86,196			183,069			218,706
Preferred stock dividends	2,494			2,494			7,481			9,094
Impact of preferred stock redemption	—			—			—			3,481
Net income available to common shareholders	$	19,654		$	83,702		$	175,588		$	206,131
Earnings per common share:
Basic	$	0.15		$	1.00		$	1.79		$	2.44
Diluted	0.15			1.00			1.79			2.43
Financial Ratios:
Return on average assets ("ROAA")⁽¹⁾	0.26		%	1.55		%	0.88		%	1.32		%
Return on average common equity ("ROACE")⁽¹⁾	1.75			14.44			7.50			11.80
Return on average tangible common equity ("ROATCE")⁽¹⁾⁽²⁾	2.68			15.76			9.05			12.89
Net interest margin (FTE)^(1)(3)(4)	4.14			4.73			4.36			4.70
Dividend payout ratio	233.33			29.41			52.54			36.59
Efficiency ratio	91.32			67.41			77.08			70.40
Credit Quality Ratios:
Net charge-offs as a percentage of average loans and leases⁽¹⁾	0.39			0.15			0.36			0.24
Adjusted Financial Results (non-GAAP):
Adjusted net income attributable to TCF⁽²⁾	$	128,301		$	86,196		$	299,638		$	244,215
Adjusted diluted earnings per common share⁽²⁾	$	0.98		$	1.00		$	2.98		$	2.73
Adjusted ROAA⁽¹⁾⁽²⁾	1.34		%	1.55		%	1.41		%	1.46		%
Adjusted ROACE⁽¹⁾⁽²⁾	11.21			14.44			12.48			13.26
Adjusted ROATCE⁽¹⁾⁽²⁾	14.96			15.76			14.90			14.47
Adjusted efficiency ratio (non-GAAP)⁽²⁾	58.74			64.91			61.57			65.08


(1)	~~Denotes a non-GAAP Financial Measure. Please refer to section entitled "Non-GAAP Financial Measures" included within this Management's Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation to the most directly comparable GAAP financial measure.~~ Annualized.


(2)	~~Excludes merger and restructuring expenses and impairment of income tax credits.~~See section entitled "Non-GAAP Financial Measures" for further information.


(3)	~~"Significant items" are defined to be merger and restructuring expenses.~~Net interest income on a fully tax-equivalent ("FTE") basis divided by average interest-earning assets.


(4)	Presented on a ~~tax equivalent~~tax-equivalent basis using a 21% tax rate for each ~~2018 period presented and a 35% tax rate for each 2017~~ period presented.

~~Non-GAAP Financial Measures~~

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include our operating expenses, core (which excludes merger and restructuring expenses and impairment

Table of income tax credits); tangible book value per share; tangible shareholders' equity; presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis; operating expenses and efficiency ratio (which excludes merger and restructuring expenses, impairment of income tax credits and amortization of intangibles); the adjusted efficiency ratio and the adjusted total operating expenses as a percentage of total average assets (which both exclude merger and restructuring expenses, impairment of income tax credits, amortization of intangibles, net interest FTE adjustments, the change in fair value of loan servicing rights and gains and losses from sale of investment securities) and other information presented excluding significant items (merger and restructuring expenses and gains and losses on sale of investment securities) including net income, diluted earnings per share, return on average assets, return on average shareholders' equity and return on average tangible shareholders' equity. Management believes these non-GAAP financial measures (a) provide important supplemental information that contributes to a proper understanding of our operating performance, (b) enable a more complete understanding of factors and trends affecting our business, and (c) allow investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to our GAAP results.Contents

A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below. A reconciliation of net interest income and net interest margin (FTE) to the most directly comparable GAAP financial measure can be found under the subheading "Average Balances, Fully Taxable Equivalent (FTE) Interest and Effective Yields and Rates" of this report.

Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) Sep 30,
2018 June 30,
2018 Sep 30,
2017 Sep 30,
2018 Sep 30,
2017
Reconciliation of Non-GAAP Operating Results
Net Income
Net income, as reported $ 70,397
$ 68,988
$ 40,459
$ 210,981
$ 140,077
Merger and restructuring expenses ("significant items") —
—
21,203
—
25,835
Income tax benefit⁽¹⁾
—
—
(7,421 ) —
(9,042 )
Significant items, net of tax —
—
13,782
—
16,793
Net income, excluding significant items $ 70,397
$ 68,988
$ 54,241
$ 210,981
$ 156,870
Diluted Earnings Per Share
Diluted earnings per share, as reported $ 0.98
$ 0.96
$ 0.56
$ 2.93
$ 1.95
Effect of significant items, net of tax —
—
0.20
—
0.24
Diluted earnings per share, excluding significant items $ 0.98
$ 0.96
$ 0.76
$ 2.93
$ 2.19
Return on Average Assets
Return on average assets, as reported 1.37 % 1.39 % 0.86 % 1.41 % 1.03 %
Effect of significant items, net of tax —
—
0.29
—
0.12
Return on average assets, excluding significant items 1.37 % 1.39 % 1.15 % 1.41 % 1.15 %
Return on Average Shareholders' Equity
Return on average shareholders' equity, as reported 10.2 % 10.2 % 6.1 % 10.3 % 7.2 %
Effect of significant items, net of tax —
—
2.1
—
0.8
Return on average shareholders' equity, excluding significant items 10.2 % 10.2 % 8.2 % 10.3 % 8.0 %
Return on Average Tangible Shareholders' Equity
Average shareholders' equity $2,769,101 $2,707,346 $2,643,233 $2,720,820 $2,611,630
Average goodwill, CDI and noncompete agreements, net of tax 1,155,679 1,156,877 1,153,394 1,156,870 1,154,243
Average tangible shareholders' equity $1,613,422 $1,550,469 $1,489,839 $1,563,950 $1,457,387
Return on average tangible shareholders' equity 17.5 % 17.8 % 10.9 % 18.0 % 12.8 %
Effect of significant items, net of tax —
—
3.7
—
1.6
Return on average tangible shareholders' equity, excluding significant items 17.5 % 17.8 % 14.6 % 18.0 % 14.4 %
Efficiency Ratio
Net interest income $ 159,481
$ 157,537
$ 143,628
$ 468,881
$ 411,673
Noninterest income 37,917
38,018
32,122
116,489
111,700
Total revenue - GAAP 197,398
195,555
175,750
585,370
523,373
Net interest income FTE adjustment 2,386
2,331
3,260
6,944
9,498
Loan servicing rights change in fair value (gains) losses (932 ) 30
4,041
(4,654 ) 6,362
Gains from sale of investment securities —
(3 ) (1 ) (3 ) (168 )
Total revenue - Non-GAAP $ 198,852
$ 197,913
$ 183,050
$ 587,657
$ 539,065
Operating expenses - GAAP $ 109,661
$ 104,561
$ 119,539
$ 315,832
$ 321,972
Merger and restructuring expenses —
—
(21,203 ) —
(25,835 )
Impairment of income tax credits (3,162 ) (1,716 ) (3,095 ) (6,512 ) (3,095 )
Operating expense, core - Non-GAAP 106,499
102,845
95,241
309,320
293,042
Amortization of intangibles (1,426 ) (1,425 ) (1,526 ) (4,290 ) (4,564 )
Operating expenses, efficiency ratio - Non-GAAP $ 105,073
$ 101,420
$ 93,715
$ 305,030
$ 288,478
Efficiency ratio - GAAP 55.6 % 53.5 % 68.0 % 54.0 % 61.5 %
Efficiency ratio - adjusted Non-GAAP 52.8 % 51.2 % 51.2 % 51.9 % 53.5 %
(1) Assumes merger and restructuring expenses are deductible at an income tax rate of 35% for each period during 2017.



(Dollars in thousands)	At September 30, 2019			At December 31, 2018
Consolidated Financial Condition:
Loans and leases	$	33,510,752		$	19,073,020
Total assets	45,692,511			23,699,612
Deposits	35,286,074			18,903,686
Borrowings	3,467,782			1,449,472
Total equity	5,693,417			2,556,260
Financial Ratios:
Common equity to assets	12.04		%	9.99		%
Tangible common equity as a percent of tangible assets (non-GAAP)⁽¹⁾	9.09		%	9.32		%
Total risk-based capital ratio	12.63		%	13.38		%
Book value per common share	$	35.82		$	26.85
Tangible book value per common share (non-GAAP)⁽¹⁾	26.18			24.87
Credit Quality Ratios:
Nonaccrual loans and leases as a percentage of total loans and leases	0.54		%	0.56		%
Nonperforming 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 total nonaccrual loans and leases	66.67		%	148.65		%

Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) Sep 30,
2018 June 30,
2018 Sep 30,
2017 Sep 30,
2018 Sep 30,
2017
Total operating expenses as a percentage of total average assets (annualized)
Average assets $20,501,223 $19,850,993 $18,858,148 $19,946,039 $18,204,024
Operating expenses - GAAP $ 109,661
$ 104,561
$ 119,539
$ 315,832
$ 321,972
Merger and restructuring expenses —
—
(21,203 ) —
(25,835 )
Impairment of income tax credits (3,162 ) (1,716 ) (3,095 ) (6,512 ) (3,095 )
Operating expense, core - Non-GAAP 106,499
102,845
95,241
309,320
293,042
Total operating expenses as a percentage of total average assets (annualized) 2.1 % 2.1 % 2.5 % 2.1 % 2.4 %
Total operating expenses as a percentage of total average assets - adjusted non-GAAP(annualized)
2.1 % 2.1 % 2.0 % 2.1 % 2.1 %

(Dollars in thousands, except per share data) September 30,
2018 June 30,
2018 December 31,
2017 September 30,
2017
Tangible Book Value
Shareholders' equity, as reported $ 2,788,924
$ 2,750,999
$ 2,668,749
$ 2,673,089
Goodwill, CDI and noncompete agreements, net of tax (1,155,083 ) (1,156,307 ) (1,158,738 ) (1,153,576 )
Tangible shareholders' equity $ 1,633,841
$ 1,594,692
$ 1,510,011
$ 1,519,513
Common shares outstanding 71,438
71,418
71,207
71,152
Book value per share (shareholders' equity, as reported, divided by common shares outstanding) $ 39.04
$ 38.52
$ 37.48
$ 37.57
Tangible book value per share (tangible shareholders' equity divided by common shares outstanding) $ 22.87

$ 22.33
$ 21.21
$ 21.36
Tangible Shareholders' Equity to Tangible Assets
Total assets, as reported $20,905,489 $ 20,282,603
$ 19,280,873
$ 19,354,308
Goodwill, CDI and noncompete agreements, net of tax (1,155,083 ) (1,156,307 ) (1,158,738 ) (1,153,576 )
Tangible assets $19,750,406 $ 19,126,296
$ 18,122,135
$ 18,200,732
Shareholders' equity to total assets 13.3 % 13.6 % 13.8 % 13.8 %
Tangible shareholders' equity to tangible assets 8.3 % 8.3 % 8.3 % 8.3 %

~~Statements of Financial Position Review~~

~~Overview~~

Total assets were $20.91 billion at September 30, 2018, an increase of $1.63 billion, or 8.4%, from total assets of $19.28 billion at December 31, 2017. The increase in total assets during the nine months ended September 30, 2018 was primarily attributable to additions to our investment securities portfolio and net loan growth.

Interest-earning assets were $18.81 billion at September 30, 2018, an increase of $1.55 billion, or 9.0%, from interest-earning assets of $17.26 billion at December 31, 2017. The increase in interest-earnings assets during the nine months ended September 30, 2018 was primarily attributable to a $704.6 million increase in our investment securities portfolio and a $641.0 million increase in total loans.

Average assets were $20.50 billion during the three months ended September 30, 2018, an increase of $1.64 billion, or 8.7%, compared to average assets of $18.86 billion during the three months ended September 30, 2017. Average assets were $19.95 billion during the nine months ended September 30, 2018, an increase of $1.75 billion, or 9.6%, from average assets of $18.20 billion during the nine months ended September 30, 2017. The increase in average assets during both the three months ended September 30, 2018, compared to the three months ended September 30, 2017, and the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, was primarily attributable to loan growth and an increase in our investment securities portfolio which is reflective of our long-term plan to increase our investment securities portfolio as a percentage of total assets.

~~Investment Securities~~

The following tables summarize the maturities and yields of the carrying value of debt securities by investment category, and fair value by investment category, at September 30, 2018 and December 31, 2017:

Maturity as of September 30, 2018⁽¹⁾

Within
One Year

After One
but Within
Five Years

After Five
but Within
Ten Years

After
Ten Years

Total
Carrying
Value⁽²⁾

Total
Fair
Value
(Dollars in thousands) Amount
Yield⁽³⁾
Amount
Yield⁽³⁾
Amount
Yield⁽³⁾
Amount
Yield⁽³⁾
Amount
Yield⁽³⁾

Carried at fair value:
Government and government-sponsored agencies $ 31,136
2.94 % $ 102,527
2.86 % $ 77,152
2.83 % $ 43,638
2.90 % $ 254,453
2.87 % $ 254,453
State and political subdivisions 19,345
1.99
44,994
1.76
138,338
2.23
289,232
3.65
491,909
3.01
491,909
Residential mortgage-backed securities 21,085
2.78
69,787
2.84
49,507
2.90
36,642
3.05
177,021
2.89
177,021
Collateralized mortgage obligations 192,869
2.97
614,836
3.03
425,774
3.09
244,339
2.97
1,477,818
3.03
1,477,818
Corporate bonds 20,353
1.85
45,697
2.71
221,355
3.79
—
—
287,405
3.48
287,405
Trust preferred securities —
—
—
—
46,781
4.08
1,493
2.06
48,274
4.02
48,274
Total debt securities available-for-sale $ 284,788
2.81 % $ 877,841
2.91 % $ 958,907
3.15 % $ 615,344
3.29 % $ 2,736,880
3.07 % $ 2,736,880
Held-to-Maturity:
State and political subdivisions $ 60,438
3.35 % $ 219,410
3.17 % $ 156,757
3.33 % $ 171,262
3.07 % $ 607,867
3.20 % $ 597,747
Trust preferred securities —
—
—
—
—
—
500
5.25
500
5.25
450
Total investment securities held-to-maturity $ 60,438
3.35 % $ 219,410
3.17 % $ 156,757
3.33 % $ 171,762
3.08 % $ 608,367
3.20 % $ 598,197
Total investment securities $ 345,226
2.90 % $ 1,097,251
2.96 % $ 1,115,664
3.17 % $ 787,106
3.24 % $ 3,345,247
3.09 % $ 3,335,077



(1)	Residential mortgage-backed securities, collateralized mortgage obligations and certain government and government-sponsored agencies are based on scheduled principal maturity. All other investment securities are based on final contractual maturity.
~~(2)~~	~~The aggregate book value of securities issued by any single issuer, other than the U.S. government and government-sponsored agencies, did not exceed 10% of our shareholders' equity.~~
~~(3)~~	Yields are weighted by amount and time to contractual maturity, are on a taxable equivalent basis using a 21% federal income tax rate and are based on carrying value. Yields disclosed are actual yields based on carrying value at September 30, 2018. Approximately 21% of our investment securities at September 30, 2018 were variable-rate financial instruments. See section entitled "Non-GAAP Financial Measures" for further information.

Maturity as of December 31, 2017⁽¹⁾

Within
One Year

After One
but Within
Five Years

After Five
but Within
Ten Years

After
Ten Years

Total
Carrying
Value⁽²⁾

Total
Fair
Value
(Dollars in thousands) Amount
Yield⁽³⁾
Amount
Yield⁽³⁾
Amount
Yield⁽³⁾
Amount
Yield⁽³⁾
Amount
Yield⁽³⁾

Available-for-Sale:
Government and government-sponsored agencies $ 30,241
2.29 % $ 81,106
2.39 % $ 61,461
2.43 % $ 30,108
2.43 % $ 202,916
2.39 % $ 202,916
State and political subdivisions 9,219
2.55
60,691
2.14
115,623
2.63
160,437
3.70
345,970
3.04
345,970
Residential mortgage-backed securities 21,922
2.44
66,510
2.46
38,594
2.52
23,105
2.58
150,131
2.49
150,131
Collateralized mortgage obligations 223,295
2.65
500,467
2.61
231,658
2.74
78,425
2.98
1,033,845
2.68
1,033,845
Corporate bonds 13,968
1.73
37,308
2.01
141,518
3.68
—
—
192,794
3.22
192,794
Trust preferred securities —
—
—
—
22,967
3.62
13,099
2.93
36,066
3.37
36,066
Total debt securities available-for-sale $ 298,645
2.55 % $ 746,082
2.50 % $ 611,821
2.92 % $ 305,174
3.27 % $ 1,961,722
2.76 % $ 1,961,722
Held-to-Maturity:
State and political subdivisions $ 89,359
2.33 % $ 237,113
3.12 % $ 152,299
3.92 % $ 197,822
3.64 % $ 676,593
3.35 % $ 662,516
Trust preferred securities —
—
—
—
—
—
500
4.75
500
4.75
390
Total investment securities held-to-maturity $ 89,359
2.33 % $ 237,113
3.12 % $ 152,299
3.92 % $ 198,322
3.64 % $ 677,093
3.35 % $ 662,906
Total investment securities $ 388,004
2.50 % $ 983,195
2.65 % $ 764,120
3.12 % $ 503,496
3.42 % $ 2,638,815
2.92 % $ 2,624,628



~~(1)~~	Residential mortgage-backed securities, collateralized mortgage obligations and certain government and government-sponsored agencies are based on scheduled principal maturity. All other investment securities are based on final contractual maturity.
~~(2)~~	~~The aggregate book value of securities issued by any single issuer, other than the U.S. government and government-sponsored agencies, did not exceed 10% of our shareholders' equity.~~
~~(3)~~	Yields are weighted by amount and time to contractual maturity, are on a taxable equivalent basis using a 35% federal income tax rate and are based on carrying value. Yields disclosed are actual yields based on carrying value at December 31, 2017. Approximately 22% of the our investment securities at December 31, 2017 were variable-rate financial instruments.

We utilize third-party pricing services to obtain market value prices for our investment securities portfolio. On a quarterly basis, we validate the reasonableness of prices received from third-party pricing services through independent price verification on a sample of investment securities in the portfolio, data integrity validation based upon comparison of current market prices to prior period market prices and analysis of overall expectations of movement in market prices based upon the changes in the related yield curves and other market factors. On an annual basis, we review the pricing methodology of the third-party pricing vendors and the results of the vendors' internal control assessments to ensure the integrity of the process that each vendor uses to develop market pricing for our investment securities portfolio.

The carrying value of investment securities totaled $3.35 billion at September 30, 2018, an increase of $704.6 million, or 26.7%, from investment securities of $2.64 billion at December 31, 2017, primarily as a result of our long-term plan to increase our investment securities portfolio as a percentage of total assets.

~~Our investment securities portfolio as of September 30, 2018 had a weighted average life of approximately 5.7 years and an effective duration of approximately 3.1 years.~~

~~The following table summarizes the carrying value of investment securities at September 30, 2018 and December 31, 2017:~~

(Dollars in thousands) September 30,
2018 December 31,
2017
Carried at Fair Value:
Government and government-sponsored agencies $ 254,453
$ 202,916
State and political subdivisions 491,909
345,970
Residential mortgage-backed securities 177,021
150,131
Collateralized mortgage obligations 1,477,818
1,033,845
Corporate bonds 287,405
192,794
Trust preferred securities 48,274
36,066
Preferred stock —
1,824
Total investment securities carried at fair value 2,736,880
1,963,546
Held-to-maturity:
State and political subdivisions 607,867
676,593
Trust preferred securities 500
500
Total investment securities held-to-maturity 608,367
677,093
Total investment securities $ 3,345,247
$ 2,640,639

At September 30, 2018, our investment securities portfolio consisted of: Government and government-sponsored agency (GSA) debt obligations, comprised primarily of fixed-rate instruments backed by a U.S. government agency (Small Business Administration) or government-sponsored enterprises (Federal Home Loan Banks, Federal Farm Credit Banks and the Student Loan Marketing Corporation), totaling $254.5 million; state and political subdivisions debt obligations, comprised primarily of general debt obligations of issuers mostly located in the State of Michigan, totaling $1.10 billion; residential mortgage-backed securities (MBSs), comprised primarily of fixed-rate instruments backed by a U.S. government agency (Government National Mortgage Association) or government-sponsored enterprises (Federal Home Loan Mortgage Corporation and Federal National Mortgage Association), totaling $177.0 million; collateralized mortgage obligations (CMOs), comprised of approximately 86.9% fixed-rate and 13.1% variable-rate instruments primarily backed by the same U.S. government agency and government-sponsored enterprises as the residential MBSs, totaling $1.48 billion; corporate bonds, comprised primarily of debt obligations of large U.S. global financial organizations, totaling $287.4 million; and preferred stock and trust preferred securities (TRUPs), comprised of preferred stock debt instruments of two large regional/national banks and variable-rate TRUPs from both publicly-traded bank holding companies and small non-public bank holding companies, totaling $48.8 million. Fixed-rate instruments comprised approximately 79.2% of our investment securities portfolio at September 30, 2018.

We record investment securities in accordance with ASC Topic 320, Investments - Debt Securities under which we are required to assess securities that have fair values below their amortized cost basis to determine whether the decline (impairment) is other-than-temporary. An assessment is performed quarterly to determine whether unrealized losses in our debt securities portfolio are temporary or other-than-temporary by considering all reasonably available information. We review factors such as financial statements, credit ratings, news releases and other pertinent information of the underlying issuer or company to make our determination. In assessing whether a decline is other-than-temporary, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than the amortized cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the potential for impairments in an entire industry or sub-sector and (iv) the potential for impairments in certain economically depressed geographical locations.

Our total investment securities portfolio had a carrying value of $3.35 billion at September 30, 2018, with gross unrealized losses of $83.2 million at that date. We believe that the unrealized losses on debt securities at September 30, 2018 were temporary in nature and due primarily to changes in interest rates on the investment securities and market illiquidity, and not as a result of credit-related issues. Accordingly, we believe the unrealized losses in our debt securities portfolio at September 30, 2018 were temporary in nature and, therefore, no impairment loss was recognized in our Consolidated Statements of Income for the nine months ended September 30, 2018. However, other-than-temporary impairment (OTTI) may occur in the future as a result of material declines in the fair value of investment securities resulting from market, credit, economic or other conditions. A further discussion of the assessment of potential impairment and our process that resulted in the conclusion that the impairment was temporary in nature follows.

At September 30, 2018, the gross unrealized losses in our debt securities portfolio of $83.2 million were comprised as follows: state and political subdivisions securities of $26.6 million; government and GSA securities, residential MBSs and CMOs, combined, of $49.5 million; corporate bonds of $6.9 million; and TRUPs of $0.2 million. The amortized costs and fair values of investment securities are disclosed in ~~Note 3~~ ~~to the Consolidated Financial Statements.~~

State and political subdivisions securities, included in the available-for-sale and the held-to-maturity investment securities portfolios, had an amortized cost of $1.11 billion and gross unrealized losses of $26.6 million at September 30, 2018. The majority of our state and political subdivisions securities are from issuers located in the State of Michigan. Approximately 77.5% of the state and political subdivisions securities are general obligations of the issuer, meaning that repayment of these obligations is funded by general tax collections of the issuer. The gross unrealized losses were attributable to state and political subdivisions securities with an amortized cost of $1.00 billion that generally mature beyond 2018. It was our assessment that the unrealized losses on these investment securities were attributable to current market interest rates being slightly higher than the yield on these investment securities and illiquidity in the market due to the nature of a portion of these investment securities. We concluded that the unrealized losses in our state and political subdivisions securities were temporary in nature at September 30, 2018.

GSA securities, residential MBSs and CMOs, included in the available-for-sale investment securities portfolio, had a combined amortized cost of $1.96 billion and gross unrealized losses of $49.5 million at September 30, 2018. Virtually all of the investment securities in these categories are backed by the full faith and credit of the U.S. government, or a guarantee of a U.S. government agency or government-sponsored enterprise. We determined that the unrealized losses on these investment securities were attributable to current market interest rates being higher than the yields being earned on these investment securities. We concluded that the unrealized losses in our GSA securities, residential MBSs and CMOs were temporary in nature at September 30, 2018.

Corporate bonds included in the available-for-sale investment securities portfolio had an amortized cost of $293.8 million and gross unrealized losses of $6.9 million at September 30, 2018. The investment securities in this category are investment grade securities and none have had recent downgrades. We determined that the unrealized losses on these investment securities were attributable to current market interest rates being higher than the yields being earned on these investment securities. We concluded that the unrealized loss in our corporate bonds was temporary in nature at September 30, 2018.

At September 30, 2018, we held one TRUP in the held-to-maturity investment securities portfolio, with an amortized cost of $0.5 million and gross unrealized loss of $0.1 million. This TRUP represents a 10% interest in the TRUP of a well-capitalized non-public bank holding company in Michigan. The principal of $0.5 million of this TRUP matures in 2033, with interest payments due quarterly. All scheduled interest payments on this TRUP have been made on a timely basis. We determined that the unrealized loss on this TRUP was attributable to a lack of liquidity for issuances of this size. We concluded that the unrealized loss on our TRUP was temporary in nature at September 30, 2018.

At September 30, 2018, we expected to fully recover the entire amortized cost basis of each debt security in an unrealized loss position in our debt securities portfolio at that date. Furthermore, at September 30, 2018, we did not have the intent to sell any of our debt securities in an unrealized loss position and believed that it was more-likely-than-not that we would not have to sell any of our debt securities before a full recovery of amortized cost. However, there can be no assurance that OTTI losses will not be recognized on any debt security in the future.

~~Loans~~Results of Operations

Our loan portfolio is comprised of commercial, commercial real estate (which includes owner-occupied, non-owner occupied and vacant land) and real estate construction and land development loans, referred to as our commercial loan portfolio, and residential mortgage, consumer installment and home equity loans, referred to as our consumer loan portfolio. At September 30, 2018, our loan portfolio was $14.80 billion and consisted of loans in the commercial loan portfolio totaling $9.05 billion, or 61.2% of total loans, and loans in the consumer loan portfolio totaling $5.74 billion, or 38.8% of total loans.

Chemical Bank is a full-service commercial bank and the acceptance and management of credit risk is an integral part of our business. We maintain loan policies and credit underwriting standards as part of the process of managing credit risk. These standards include making loans generally only within our market areas. Our lending markets generally consist of communities throughout Michigan and additional communities located within Ohio and Northern Indiana. Our lending philosophy is implemented through strong administrative and reporting controls. We maintain a centralized independent loan review function that monitors the approval process and ongoing asset quality of the loan portfolio.

Total loans were $14.80 billion at September 30, 2018, an increase of $641.0 million, or 4.5%, from total loans of $14.16 billion at December 31, 2017, and an increase of $962.9 million, or 7.0%, from total loans of $13.83 billion at September 30, 2017. We experienced originated loan growth of $448.9 million during the third quarter of 2018 and $1.99 billion during the twelve months ended September 30, 2018.

~~The following table includes the composition of our loan portfolio, by major loan category, as of September 30, 2018 and December 31, 2017.~~

(Dollars in thousands) September 30,
2018 December 31,
2017
Commercial loan portfolio:
Commercial $ 3,719,922
$ 3,385,642
Commercial real estate:
Owner-occupied 1,897,934
1,813,562
Non-owner occupied 2,739,700
2,606,761
Vacant land 73,987
80,347
Total commercial real estate 4,711,621
4,500,670
Real estate construction and land development 622,147
574,215
Subtotal - commercial loan portfolio 9,053,690
8,460,527
Consumer loan portfolio:
Residential mortgage 3,391,987
3,252,487
Consumer installment 1,560,265
1,613,008
Home equity 790,310
829,245
Subtotal - consumer loan portfolio 5,742,562
5,694,740
Total loans $ 14,796,252
$ 14,155,267

~~A discussion of our loan portfolio by category follows.~~

~~Commercial Loan Portfolio~~

Our commercial loan portfolio is comprised of commercial loans, commercial real estate loans (which includes owner-occupied, non-owner occupied and vacant land), real estate construction loans and land development loans. Our commercial loan portfolio is well diversified across business lines and has no concentrations in any one industry. The commercial loan portfolio of $9.05 billion at September 30, 2018 included 162 loan relationships of $10.0 million or greater. These 162 loan relationships totaled $3.65 billion, which represented 40.4% of the commercial loan portfolio at September 30, 2018 and included 98 loan relationships that had outstanding balances of $15.0 million or higher, totaling $2.89 billion, or 31.9% of the commercial loan portfolio, at that date. We had 61 loan relationships that had outstanding balances of $20.0 million or higher, totaling $2.25 billion, or 24.8% of the commercial loan portfolio, at September 30, 2018. We had 30 loan relationships at September 30, 2018 with loan balances greater than $10.0 million and less than $15.0 million, totaling $368.4 million, that had unfunded credit commitments totaling $222.3 million that, if advanced, could result in a loan relationship of $15.0 million or more.

The following table presents contractual maturities of our $9.05 billion commercial loan portfolio at September 30, 2018. Commercial loans at fixed interest rates comprised 53.2% of our total commercial loan portfolio at September 30, 2018, compared to 56.8% at December 31, 2017. The percentage of these loans maturing within one year was 20.9% at September 30, 2018, while the percentage of these loans maturing beyond five years remained low at 24.5% at September 30, 2018. At September 30, 2018, loans in the commercial loan portfolio with maturities beyond one year totaled $7.16 billion, with 58.6% of these loans at fixed interest rates.

September 30, 2018
Due In
(Dollars in thousands)
1 Year
or Less

1 to 5
Years

Over 5
Years
Total
Loan maturities:
Commercial $ 1,133,341
$ 2,044,299
$ 542,282
$ 3,719,922
Commercial real estate:
Owner-occupied 217,357
1,103,714
576,863
1,897,934
Non-owner occupied 353,941
1,468,797
916,962
2,739,700
Vacant land 23,452
33,913
16,622
73,987
Total commercial real estate 594,750
2,606,424
1,510,447
4,711,621
Real estate construction and land development 161,028
296,946
164,173
622,147
Total $ 1,889,119
$ 4,947,669
$ 2,216,902
$ 9,053,690
Percent of total 20.9 % 54.6 % 24.5 % 100.0 %
Interest sensitivity of above loans:
Fixed interest rates $ 618,270
$ 3,279,529
$ 920,205
$ 4,818,004
Variable interest rates 1,270,849
1,668,140
1,296,697
4,235,686
Total $ 1,889,119
$ 4,947,669
$ 2,216,902
$ 9,053,690

~~The following table presents the contractual maturities of our $8.46 billion commercial loan portfolio at December 31, 2017.~~

December 31, 2017
Due In
(Dollars in thousands)
1 Year
or Less

1 to 5
Years

Over 5
Years
Total
Loan maturities:
Commercial $ 1,175,608
$ 1,766,562
$ 443,472
$ 3,385,642
Commercial real estate:
Owner-occupied 254,935
1,048,786
509,841
1,813,562
Non-owner occupied 304,692
1,493,661
808,408
2,606,761
Vacant land 21,211
41,334
17,802
80,347
Total commercial real estate 580,838
2,583,781
1,336,051
4,500,670
Real estate construction and land development 128,706
231,557
213,952
574,215
Total $ 1,885,152
$ 4,581,900
$ 1,993,475
$ 8,460,527
Percent of total 22.3 % 54.1 % 23.6 % 100.0 %
Interest sensitivity of above loans:
Fixed interest rates $ 717,547
$ 3,074,906
$ 1,013,538
$ 4,805,991
Variable interest rates 1,167,605
1,506,994
979,937
3,654,536
Total $ 1,885,152
$ 4,581,900
$ 1,993,475
$ 8,460,527

Commercial loans consist of loans and lines of credit to varying types of businesses, including municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital and operational needs and term financing of equipment. Repayment of such loans is generally provided through operating cash flows of the borrower. Commercial loans are generally secured with inventory, accounts receivable, equipment, personal guarantees of the owner or other sources of repayment, although we may also obtain real estate as collateral.

Commercial loans were $3.72 billion at September 30, 2018, an increase of $334.3 million, or 9.9%, from commercial loans of $3.39 billion at December 31, 2017. Commercial loans represented 25.1% of our loan portfolio at September 30, 2018, compared to 23.9% at December 31, 2017.

Commercial real estate loans include loans that are secured by real estate occupied by the borrower for ongoing operations (owner occupied), non-owner occupied real estate leased to one or more tenants (non-owner occupied) and vacant land that has been acquired for investment or future land development (vacant land). Commercial real estate loans were $4.71 billion at

September 30, 2018, an increase of $211.0 million, or 4.7%, from commercial real estate loans of $4.50 billion at December 31, 2017. Loans secured by owner occupied properties, non-owner occupied properties and vacant land comprised 40.3%, 58.1% and 1.6%, respectively, of our commercial real estate loans outstanding at September 30, 2018. Commercial real estate loans represented 31.8% of our loan portfolio at September 30, 2018, compared to 31.8% at December 31, 2017.

Commercial and commercial real estate lending are generally considered to involve a higher degree of risk than residential mortgage, consumer installment and home equity lending as they typically involve larger loan balances concentrated in a single borrower. In addition, the payment experience on loans secured by income-producing properties and vacant land loans is typically dependent on the success of the operation of the related project and is typically affected by adverse conditions in the real estate market and in the economy. We generally attempt to mitigate the risks associated with commercial and commercial real estate lending by, among other things, lending primarily in our market areas, lending across industry lines, not developing a concentration in any one line of business and using prudent loan-to-value ratios in the underwriting process. It is management's belief that our commercial and commercial real estate loan portfolios are generally well-secured.

Real estate construction loans are primarily originated for construction of commercial properties and often convert to a commercial real estate loan at the completion of the construction period. Land development loans include loans made to developers for the purpose of infrastructure improvements to vacant land to create finished marketable residential and commercial lots/land. A majority of our land development loans consist of loans to develop residential real estate. Land development loans are generally originated as interest only with the intention that the loan principal balance will be repaid through the sale of finished properties by the developers within twelve months of the completion date. Real estate construction and land development loans were $622.1 million at September 30, 2018, an increase of $47.9 million, or 8.3%, compared to $574.2 million at December 31, 2017. Real estate construction and land development loans represented 4.2% of our loan portfolio at September 30, 2018, compared to 4.1% at December 31, 2017.

Real estate construction and land development lending involves a higher degree of risk than commercial real estate lending and residential mortgage lending because of the uncertainties of construction, including the possibility of costs exceeding the initial estimates, the need to obtain a tenant or purchaser of the property if it will not be owner-occupied or the need to sell developed properties. We generally attempt to mitigate the risks associated with real estate construction and land development lending by, among other things, lending primarily in our market areas, using prudent underwriting guidelines and closely monitoring the construction process. At September 30, 2018, $28.7 million or 4.6%, of our $622.1 million of real estate construction and land development loans were considered impaired, whereby we determined it was probable that the full amount of principal and interest would not be collected on these loans in accordance with their original contractual terms and therefore, were individually assessed for impairment. At December 31, 2017, $0.3 million, or 0.1%, of our $574.2 million of real estate and construction and land development loans were considered impaired. The increase in nonperforming assets during the nine months ended September 30, 2018 was primarily attributable to one real estate construction loan relationship that we downgraded to nonaccrual status during the third quarter of 2018.

~~Consumer Loan Portfolio~~

~~Our consumer loan portfolio is comprised of residential mortgage loans, consumer installment loans and home equity loans and lines of credit.~~

Residential mortgage loans consist primarily of one- to four-family residential loans with fixed interest rates of 15 years or less, with amortization periods generally from 15 to 30 years. The loan-to-value ratio at the time of origination is generally 80% or less. Loans with more than an 80% loan-to-value ratio generally require private mortgage insurance.

Residential mortgage loans were $3.39 billion at September 30, 2018, an increase of $139.5 million, or 4.3%, from residential mortgage loans of $3.25 billion at December 31, 2017. Residential mortgage loans historically involve the least amount of credit risk in our loan portfolio. Residential mortgage loans also include loans to consumers for the construction of single family residences that are secured by these properties. Residential mortgage construction loans to consumers were $221.1 million at September 30, 2018, compared to $272.3 million at December 31, 2017. Residential mortgage loans represented 22.9% of our loan portfolio at September 30, 2018, compared to 23.0% of our loan portfolio at December 31, 2017.

Our consumer installment loans consist of relatively small loan amounts to consumers to finance personal items (primarily automobiles, recreational vehicles and marine vehicles) and are comprised primarily of indirect loans generated from dealerships. Consumer installment loans were $1.56 billion at September 30, 2018, a decrease of $52.7 million, or 3.3%, from consumer installment loans of $1.61 billion at December 31, 2017. At September 30, 2018, collateral securing consumer installment loans was comprised approximately as follows: automobiles - 53.6%; recreational vehicles - 21.8%; marine vehicles - 20.5%; other

~~collateral - 1.9%; and unsecured - 2.2%. Consumer installment loans represented 10.5% of our loan portfolio at September 30, 2018, compared to 11.4% at December 31, 2017.~~

Our home equity loans, including home equity lines of credit, are comprised of loans to consumers who utilize equity in their personal residence, including junior lien mortgages, as collateral to secure the loan or line of credit. Home equity loans were $790.3 million at September 30, 2018, a decrease of $38.9 million, or 4.7%, from home equity loans of $829.2 million at December 31, 2017. Home equity loans represented 5.3% of our loan portfolio at September 30, 2018, compared to 5.9% at December 31, 2017. Home equity lines of credit comprised $374.6 million, or 47.4%, of our home equity loans at September 30, 2018, compared to $396.2 million, or 47.8%, of home equity loans at December 31, 2017. The majority of our home equity lines of credit are comprised of loans with payments of interest only and original maturities of up to ten years. These home equity lines of credit include junior lien mortgages whereby the first lien mortgage is held by a nonaffiliated financial institution.

Consumer installment and home equity loans generally have shorter terms than residential mortgage loans, but generally involve more credit risk than residential mortgage lending because of the type and nature of the collateral. We experienced net credit losses on consumer installment and home equity loans totaling 23 basis points (annualized) of average consumer installment and home equity loans during the nine months ended September 30, 2018, compared to 20 basis points of average consumer installment and home equity loans in all of 2017. Consumer installment and home equity loans are spread across many individual borrowers, which minimizes the risk per loan transaction. We originate consumer installment and home equity loans utilizing a computer-based credit scoring analysis to supplement the underwriting process. Consumer installment and home equity lending collections are dependent on the borrowers' continuing financial stability and are more likely to be affected by adverse personal situations. Collateral values on properties securing consumer installment and home equity loans are negatively impacted by many factors, including the physical condition of the collateral and property values, although losses on consumer installment and home equity loans are often more significantly impacted by the unemployment rate and other economic conditions. The unemployment rates in Michigan, Ohio and Indiana were 4.0%, 4.6% and 3.5%, respectively, at September 30, 2018, compared to 4.7%, 4.7% and 3.4%, respectively, at December 31, 2017. The national average unemployment rate was 3.7% at ~~September 30, 2018~~.

~~Asset Quality~~

Performance Summary TCF reported net income of ~~Impaired Assets~~$22.1 million and ~~Past Due Loans~~

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans included nonperforming loans and all troubled debt restructurings ("TDRs").

~~Nonperforming assets consist of loans~~$183.1 million for which the accrual of interest has been discontinued, other real estate owned acquired through acquisitions or mergers, other real estate owned obtained through foreclosures and other repossessed assets. We do not consider accruing TDRs to be nonperforming assets. The level of nonaccrual is an important element in assessing asset quality. We transfer originated loans that are 90 days or more past due to nonaccrual status, unless we believe the loan is both well-secured and in the process of collection. For loans classified as nonaccrual, including those with modifications, we do not expect to receive all principal and interest payments, and therefore, any payments are recognized as principal reductions when received.

Acquired loans, accounted for under ASC 310-30, that are not performing in accordance with contractual terms are not reported as nonperforming because these loans are recorded in pools at their net realizable value based on the principal and interest we expect to collect on these loans.

Nonperforming assets were $103.3 million at September 30, 2018, an increase of $31.4 million, or 43.6%, from $71.9 million at December 31, 2017. The increase in nonperforming assets during the nine months ended September 30, 2018 was primarily attributable to one real estate construction loan relationship that we downgraded to nonaccrual status. Nonperforming assets represented 0.49% of total assets at September 30, 2018 and 0.37% at December 31, 2017, respectively. Our nonperforming assets are notconcentrated in any one industry or any one geographical area within our footprint. We individually assess each impaired loan to determine if a specific reserve is needed within our allowance for loan losses beyond any charge-offs that may have already been taken.

~~The following schedule provides a summary of impaired assets:~~

(Dollars in thousands) September 30,
2018 December 31,
2017
Nonaccrual loans⁽¹⁾:

Commercial $ 25,328
$ 19,691
Commercial real estate:
Owner-occupied 14,936
19,070
Non-owner occupied 8,991
5,270
Vacant land 4,711
5,205
Commercial real estate 28,638
29,545
Real estate construction and land development 28,477
77
Residential mortgage 9,611
8,635
Consumer installment 1,350
842
Home equity 3,269
4,305
Total nonaccrual loans 96,673
63,095
Other real estate and repossessed assets 6,584
8,807
Total nonperforming assets $ 103,257
$ 71,902
Accruing troubled debt restructurings
Commercial loan portfolio $ 29,383
$ 34,484
Consumer loan portfolio 13,642
14,298
Total performing troubled debt restructurings 43,025
48,782
Total impaired assets $ 146,282
$ 120,684
Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding loans accounted for under ASC 310-30
Commercial loan portfolio $ 717
$ 13
Consumer loan portfolio 475
1,364
Total accruing loans contractually past due 90 days or more as to interest or principal payments $ 1,192
$ 1,377
Nonperforming loans as a percent of total loans 0.65 % 0.45 %
Nonperforming assets as a percent of total assets 0.49 % 0.37 %
Impaired assets as a percent of total assets 0.70 % 0.63 %


⁽¹⁾	~~Includes nonaccrual troubled debt restructurings.~~

Nonaccrual loans that meet the definition of a TDR (nonaccrual TDR) totaled $28.1 million at September 30, 2018, compared to $29.1 million at December 31, 2017. These loans have been modified by providing the borrower a financial concession that is intended to improve our probability of collection of the amounts due.

The following schedule summarizes impaired loans to commercial borrowers and the related valuation allowance at September 30, 2018 and December 31, 2017 and partial loan charge-offs (confirmed losses) taken on these impaired loans:

(Dollars in thousands) Amount
Valuation
Allowance

Confirmed
Losses

Cumulative
Inherent
Loss
Percentage
September 30, 2018
Impaired loans – originated commercial loan portfolio:
With valuation allowance and no charge-offs $ 55,136
$ 3,098
$ —
6 %
With valuation allowance and charge-offs 5,428
458
6,452
58 %
With charge-offs and no valuation allowance 10,614
—
4,135
28 %
Without valuation allowance or charge-offs 40,419
—
—
— %
Total impaired loans to commercial borrowers $ 111,597
$ 3,556
$ 10,587
12 %
December 31, 2017
Impaired loans – originated commercial loan portfolio:
With valuation allowance and no charge-offs $ 48,622
$ 4,618
$ —
9 %
With valuation allowance and charge-offs 8,591
919
9,335
57 %
With charge-offs and no valuation allowance 4,695
—
2,568
35 %
Without valuation allowance or charge-offs 21,889
—
—
— %
Total impaired loans to commercial borrowers $ 83,797
$ 5,537
$ 11,903
18 %

~~After analyzing the various components of the customer relationships and evaluating the underlying collateral of impaired loans, we determined that impaired loans in the commercial loan portfolio~~totaling $60.6 million at September 30, 2018 required a specific allocation of the allowance for loan losses (valuation allowance) of $3.6 million, compared to $57.2 million of impaired loans in the commercial loan portfolio at December 31, 2017 which required a valuation allowance of $5.5 million.

~~Nonperforming Loans~~

~~The following schedule provides the composition of nonperforming loans, by major loan category, as of September 30, 2018 and December 31, 2017.~~

September 30, 2018 December 31, 2017
(Dollars in thousands) Amount
Percent
of Total Amount Percent
of Total
Commercial loan portfolio:
Commercial $ 25,328
26.2 % $ 19,691
31.2 %
Commercial real estate:
Owner-occupied 14,936
15.4
19,070
30.2
Non-owner occupied 8,991
9.3
5,270
8.4
Vacant land 4,711
4.9
5,205
8.3
Total commercial real estate 28,638
29.6
29,545
46.9
Real estate construction and land development 28,477
29.5
77
0.1
Subtotal-commercial loan portfolio 82,443
85.3
49,313
78.2
Consumer loan portfolio:
Residential mortgage 9,611
9.9
8,635
13.7
Consumer installment 1,350
1.4
842
1.3
Home equity 3,269
3.4
4,305
6.8
Subtotal-consumer loan portfolio 14,230
14.7
13,782
21.8
Total nonperforming loans $ 96,673
100.0 % $ 63,095
100.0 %

Total nonperforming loans were $96.7 million at September 30, 2018, an increase of $33.6 million, or 53.2%, compared to $63.1 million at December 31, 2017. Our nonperforming loans in the commercial loan portfolio were $82.4 million at

September 30, 2018, an increase of $33.1 million, or 67.2%, from $49.3 million at December 31, 2017. Nonperforming loans in the commercial loan portfolio comprised 85.3% of total nonperforming loans at September 30, 2018, compared to 78.2% at December 31, 2017. Our nonperforming loans in the consumer loan portfolio were $14.2 million at September 30, 2018, an increase of $0.4 million, or 3.3%, from $13.8 million at December 31, 2017.

~~The following schedule summarizes changes in nonaccrual loans (including nonaccrual TDRs) during~~ the three and nine months ended September 30, ~~2018~~2019, respectively, compared with $86.2 million and ~~2017.~~

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2018 2017 2018 2017
Balance at beginning of period $ 66,742
$ 50,894
$ 63,095
$ 44,334
Additions during period 48,978
13,923
85,280
39,005
Principal balances charged off (2,551 ) (4,680 ) (11,600 ) (10,987 )
Transfers to other real estate/repossessed assets (1,272 ) (1,046 ) (3,625 ) (4,427 )
Returned to accrual status (2,604 ) (2,429 ) (7,041 ) (4,324 )
Payments received (12,623 ) (2,357 ) (29,439 ) (9,296 )
Balance at end of period $ 96,670
$ 54,305
$ 96,670
$ 54,305

~~Nonperforming Loans — Commercial Loan Portfolio~~

~~The following schedule presents information related to stratification of nonperforming loans~~$218.7 million for the same periods in 2018. For the ~~commercial loan portfolio by dollar amount at~~three and nine months ended September 30, ~~2018~~2019, net income included merger-related expenses of $111.3 million in addition to non-core items of $41.1 million. Non-core items, for both the three and ~~December 31, 2017.~~

September 30, 2018 December 31, 2017
(Dollars in thousands)
Number of
Borrowers
Amount Number of
Borrowers Amount
$5,000,000 or more 1
$ 29,923
2
$ 10,426
$2,500,000 – $4,999,999 4
13,382
—
—
$1,000,000 – $2,499,999 4
5,158
7
10,063
$500,000 – $999,999 11
8,011
12
8,593
$250,000 – $499,999 31
10,847
27
9,473
Under $250,000 211
15,122
150
10,758
Total 262
$ 82,443
198
$ 49,313

~~Nonperforming commercial loans within the commercial loan portfolio were $25.3 million at~~nine months ended September 30, ~~2018,~~2019, included the loss on transfer of legacy TCF auto finance portfolio to held-for-sale ($19.3 million), the termination of interest rate swaps ($17.3 million), the write-down of company-owned vacant land parcels due to an ~~increase~~intent to sell ($5.9 million), and loan servicing rights impairment ($4.5 million), partially offset by the gain on sale of $5.6 million, or 28.6%, compared to $19.7 million at December 31, 2017. Nonperforming commercial loans comprised 0.7% of total commercial loans at September 30, 2018, compared to 0.6% at December 31, 2017.

~~Nonperforming commercial real estate loans within~~certain investment securities ($5.9 million). Net income included non-core items for the ~~commercial loan portfolio were $28.6 million at~~nine months ended September 30, 2018 a ~~decrease~~$32.0 million charge related to the settlement with the Consumer Financial Protection Bureau (the "CFPB") and Office of ~~$0.9~~the Comptroller of the Currency (the "OCC"). Adjusted net income, excluding merger-related expenses and the identified non-core items, net of tax, a non-GAAP financial measure, was $128.3 million ~~or 3.1%,~~and $299.6 million for the three and nine months ended September 30, 2019, respectively, compared to ~~$29.5~~$86.2 million ~~at December 31, 2017. Nonperforming commercial real estate loans comprised 0.6%~~ and ~~0.7%~~$244.2 million for the same periods in 2018. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

TCF reported diluted earnings per common share of ~~total commercial real estate loans at~~$0.15 and $1.79 for the three and nine months ended September 30, ~~2018~~2019, respectively, compared with $1.00 and ~~December 31, 2017, respectively. Nonperforming commercial real estate loans secured by owner occupied real estate, non-owner occupied real estate~~$2.43 for the same periods in 2018. Adjusted diluted earnings per common share, a non-GAAP financial measure, for the three and ~~vacant land totaled $14.9 million, $9.0 million and $4.7 million, respectively, at~~nine months ended September 30, ~~2018. At September 30, 2018, our nonperforming commercial real estate loans were comprised of~~2019 was $0.98 and $2.98, respectively, excluding merger-related expenses and non-core items. Adjusted diluted earnings per common share, a ~~diverse mix of commercial lines of business and were also geographically disbursed throughout our market areas.The largest concentrations of the $28.6 million in nonperforming commercial real estate loans at September 30, 2018 were three customerrelationships totaling $9.2 million with one customer relationship totaling $3.6 million that was primarily secured by vacant land.~~

Nonperforming real estate construction and land development loans were $28.5 million at September 30, 2018, an increase of $28.4 million compared to $0.1 million at December 31, 2017. The increase in nonperforming real estate construction and land development loans was primarily due to one real estate construction loan relationship being downgraded to nonaccrual status during the third quarter of 2018. Nonperforming real estate construction and land development loans comprised 4.6% of total real estate construction and land development loans at September 30, 2018, compared to less than 0.1% at December 31, 2017.

At September 30, 2018, we had nonperforming loans in the commercial loan portfolio of $1.7 million that were secured by real estate and were in various stages of foreclosure, compared to $1.2 million at December 31, 2017.

~~Nonperforming Loans — Consumer Loan Portfolio~~

Nonperforming residential mortgage loans were $9.6 million at September 30, 2018, an increase of $1.0 million, or 11.3%, from $8.6 million at December 31, 2017. Nonperforming residential mortgage loans comprised 0.3% of total residential mortgage loans at September 30, 2018 and December 31, 2017. At September 30, 2018, a total of $1.7 million of nonperforming residential mortgage loans were in various stages of foreclosure, compared to $0.5 million at December 31, 2017.

Nonperforming consumer installment loans were $1.4 million at September 30, 2018, compared to $0.8 million at December 31, 2017. Nonperforming consumer installment loans comprised 0.1% of total consumer installment loans at both September 30, 2018 and December 31, 2017.

Nonperforming home equity loans were $3.3 million at September 30, 2018, a decrease of $1.0 million, or 24.1%, compared to $4.3 million at December 31, 2017. Nonperforming home equity loans comprised 0.4% of total home equity loans at September 30, 2018, compared to 0.5% at December 31, 2017.

~~Troubled Debt Restructurings (TDRs)~~

~~We assess all loan modifications to determine whether a restructuring constitutes a TDR. A restructuring is considered a TDR when a borrower demonstrates~~non-GAAP financial difficulties and for which a concession has been granted. We determined that it was probable that certain customers who were past due on their loans, if provided a modification of their loans by reducing their monthly payments, would be able to bring their loan relationships to a performing status. We believe loan modifications will potentially result in a lower level of loan losses and loan collection costs than if we proceeded immediately through the foreclosure process with these borrowers.

Accruing TDRs continue to accrue interest at the loan's original interest rate as we expect to collect the remaining principal balance on the loan. Nonaccrual loans that meet the definition of a TDR do not accrue interest as we do not expect to collect the full amount of principal and interest owed from the borrower on these loans.

~~The following summarizes our TDRs (both accruing and nonaccrual) at September 30, 2018 and December 31, 2017:~~

Accruing TDRs Nonaccrual TDRs Total
(Dollars in thousands) Current
Past due
31-90 days
Subtotal
September 30, 2018
Commercial loan portfolio $ 28,696
$ 687
$ 29,383
$ 24,091
$ 53,474
Consumer loan portfolio 13,367
275
13,642
3,970
17,612
Total TDRs $ 42,063
$ 962
$ 43,025
$ 28,061
$ 71,086
December 31, 2017
Commercial loan portfolio $ 30,706
$ 3,778
$ 34,484
$ 24,358
$ 58,842
Consumer loan portfolio 13,552
746
14,298
4,748
19,046
Total TDRs $ 44,258
$ 4,524
$ 48,782
$ 29,106
$ 77,888

~~A summary of changes in our accruing TDRs in the commercial loan portfolio~~measure, for the three and nine months ended September 30, 2018 was $1.00 and ~~2017 follows:~~$2.73, respectively. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Table of Contents

The following table provides TCF's financial ratios and the adjusted ratios, a non-GAAP financial measure which excludes merger expenses and non-core items.

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2018 2017 2018 2017
Balance at beginning of period $ 34,161
$ 39,714
$ 34,484
$ 45,388
Additions for modifications 2,532
2,144
6,607
3,363
Principal payments and pay-offs (3,441 ) (2,747 ) (5,685 ) (6,562 )
Transfers from nonaccrual status 1,758
2,110
1,825
3,286
Transfers to nonaccrual status (5,627 ) (335 ) (7,848 ) (4,589 )
Balance at end of period $ 29,383
$ 40,886
$ 29,383
$ 40,886



Summary of Financial Ratios
	Three Months Ended September 30,				Nine Months Ended September 30,				Change From
	2019		2018		2019		2018		Three Months Ended September 30,			Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2019		2018		2019		2018		2018			2018
Return on average assets ("ROAA")⁽¹⁾	0.26	%	1.55	%	0.88	%	1.32	%	(129	)	bps	(44	)	bps
ROACE⁽¹⁾	1.75		14.44		7.50		11.80		(1,269	)		(430	)
ROATCE (non-GAAP)⁽¹⁾⁽²⁾	2.68		15.76		9.05		12.89		(1,308	)		(384	)
Adjusted Financial Results (non-GAAP)
Adjusted ROAA⁽¹⁾⁽²⁾	1.34	%	1.55	%	1.41	%	1.46	%	(21	)	bps	(5	)	bps
Adjusted ROACE⁽¹⁾⁽²⁾	11.21		14.44		12.48		13.26		(323	)		(78	)
Adjusted ROATCE⁽¹⁾⁽²⁾	14.96		15.76		14.90		14.47		(80	)		43


(1)	Annualized.


(2)	See section entitled "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

~~Other Real Estate~~Consolidated Income Statement Analysis

Net Interest Income Net interest income was $371.8 million and ~~Repossessed Assets~~

Other real estate and repossessed assets are components of nonperforming assets, included in "Interest receivable and other assets" on the Consolidated Statements of Financial Position. These include other real estate (ORE), comprised of residential and commercial real estate and land development properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure, and repossessed assets, comprised of other personal and commercial assets.~~ORE totaled $6.0~~$880.3 million at September 30, 2018, a decrease of $2.2 million, or 26.4%, from $8.2 million at December 31, 2017. The decrease in ORE during the nine months ended September 30, 2018 was primarily attributable to ORE sales. Repossessed assets totaled $0.6 million at both September 30, 2018 and December 31, 2017.

~~The following schedule provides the composition of ORE at September 30, 2018 and December 31, 2017:~~

(Dollars in thousands) September 30, 2018 December 31, 2017
Composition of ORE:
Vacant land $ 315
$ 2,064
Commercial real estate properties 2,787
3,363
Residential real estate properties 2,916
2,755
Total ORE $ 6,018
$ 8,182

~~The following schedule summarizes ORE activity during~~for the three and nine months ended September 30, ~~2018 and 2017:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2018 2017 2018 2017
Balance at beginning of period $ 4,877
$ 13,637
$ 8,182
$ 16,812
Transfers based on adoption of ASU 2014-09 —
—
(189 ) —
Additions 2,833
1,563
5,281
5,339
Write-downs (424 ) (550 ) (1,207 ) (1,323 )
Net payments received (51 ) (380 ) (190 ) (582 )
Dispositions (1,217 ) (4,204 ) (5,859 ) (10,180 )
Balance at end of period $ 6,018
$ 10,066
$ 6,018
$ 10,066

~~Our ORE is carried at the lower of cost or fair value less estimated cost to sell.~~We had $1.4 million in ORE at September 30, 2018 that had been held in excess of one year, of which $0.6 million had been held in excess of three years. We had $10.4 million of nonperforming loans that were in the process of foreclosure at September 30, 2018.

All of our ORE properties have been written down to fair value through a charge-off against the allowance for loan losses at the time the loan was transferred to ORE, through a subsequent write-down, recorded as an operating expense, to recognize a further market value decline of the property after the initial transfer date, or due to recording at fair value as a result of acquisition transactions. Accordingly, at September 30, 2018, the carrying value of ORE of $6.0 million was reflective of $3.0 million in charge-offs, write-downs and acquisition-related fair value adjustments.

During the nine months ended September 30, 2018, we sold 94 ORE properties for proceeds of $6.9 million. On an average basis, the net proceeds from these sales represented 116% of the carrying value of the property at the time of sale,2019, respectively, compared with ~~the proceeds representing 64% of the remaining contractual loan balance at the time these loans were classified as nonperforming.~~

~~Allowance for Loan Losses~~

The allowance for loan losses ("allowance") provides for probable losses in the originated and acquired loan portfolios that have been identified for probable losses believed to be inherent in the remainder of the loan portfolios.

The originated allowance is comprised of specific valuation allowances (assessed for originated loans that have known credit weaknesses and are considered impaired), pooled allowances, based on assigned risk ratings and historical loan loss experience for each loan type, and a qualitative allowance based on environmental factors that take into consideration risks inherent in the originated loan portfolio that differ from historical loan loss experience. Our methodology for measuring the adequacy of the originated allowance is comprised of several key elements, which include a review of the loan portfolio, both individually and by category, and consideration of changes in the mix and volume of the loan portfolio, actual delinquency and loan loss experience, review of collateral values, the size and financial condition of the borrowers, industry and geographical exposures within the portfolio, economic conditions and employment levels of our local markets and other factors affecting business sectors.

The allowance for each acquired loan portfolio was not carried over on the date of each respective acquisition. Instead, the acquired loans were recorded at their estimated fair values at each acquisition date, with the estimated fair values including a component for expected credit losses. Acquired loans are subsequently evaluated for further credit deterioration in loan pools, which consist of loans with similar credit risk characteristics. If an acquired loan pool experiences a decrease in expected cash flows, as compared to those expected at the acquisition date, an allowance is established and allocated to acquired loans. The acquired allowance is calculated with the objective of maintaining a reserve sufficient to absorb losses inherent in the loan portfolio. The allowance is evaluated utilizing the key assumptions and estimates, similar to the initial estimate of fair value. Management must use judgment to develop our estimates of cash flows for acquired loans, which are impacted by many factors, including changes in property values, default rates, loss severities and prepayment speeds. As a result of the significant amount of judgment involved in estimating future cash flows expected to be collected for acquired loans, the adequacy of the allowance could be significantly impacted by changes in expected cash flows resulting from changes in credit quality of acquired loans. The results of our quarterly re-estimation of cash flows on our acquired loan portfolio resulted in $970 thousand of allowance established for our acquired loan portfolios as of September 30, 2018, compared to no allowance as of December 31, 2017, and a $579 thousand allowance as of September 30, 2017.

We evaluate the originated and acquired allowances on a quarterly basis in an effort to ensure the level is adequate to absorb probable losses inherent in the loan portfolios. This evaluation process is inherently subjective as it requires estimates that may be susceptible to significant change and has the potential to affect net income materially. We believe that the allowances are currently maintained at an appropriate level, considering the inherent risk in the loan portfolios. Future significant adjustments to the allowances may be necessary due to changes in economic conditions, delinquencies or the level of loan losses incurred.

~~The following schedule summarizes information related to our allowance for loan losses:~~

(Dollars in thousands) September 30, 2018 December 31, 2017
Allowance for loan losses:
Originated loans $ 103,071
$ 91,887
Acquired loans 970
—
Total $ 104,041
$ 91,887
Nonperforming loans $ 96,673
$ 63,095
Allowance for loan losses (originated loans) as a percent of:
Total originated loans 0.93 % 0.94 %
Nonperforming loans 107 % 146 %
Nonperforming loans, less impaired originated loans for which the expected loss has been charged-off 120 % 157 %

~~A summary of the activity in the allowance for loan losses is included in the table below.~~

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30,
2018 June 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
Allowance for loan losses - originated loan portfolio
Allowance for loan losses - beginning of period $ 100,015
$ 94,762
$ 83,797
$ 91,887
$ 78,268
Provision for loan losses 5,058
9,572
4,920
20,886
15,199
Loan charge-offs:
Commercial (1,022 ) (1,210 ) (3,521 ) (3,725 ) (6,513 )
Commercial real estate:
Owner-occupied (16 ) (1,752 ) (255 ) (1,915 ) (583 )
Non-owner occupied (10 ) (2 ) (16 ) (507 ) (86 )
Vacant land —
(926 ) —
(1,376 ) (18 )
Total commercial real estate (26 ) (2,680 ) (271 ) (3,798 ) (687 )
Real estate construction and land development —
—
—
(9 ) (9 )
Residential mortgage (790 ) (172 ) (174 ) (1,121 ) (985 )
Consumer installment (1,819 ) (1,389 ) (1,312 ) (4,704 ) (4,473 )
Home equity (71 ) (275 ) (164 ) (921 ) (653 )
Total loan charge-offs (3,728 ) (5,726 ) (5,442 ) (14,278 ) (13,320 )
Recoveries of loans previously charged off:
Commercial 458
693
1,173
1,392
1,927
Commercial real estate:
Owner-occupied 271
96
85
855
965
Non-owner occupied 402
94
9
535
65
Vacant land 2
5
3
9
8
Total commercial real estate 675
195
97
1,399
1,038
Real estate construction and land development —
—
—
35
—
Residential mortgage 17
84
130
207
393
Consumer installment 409
395
455
1,303
1,559
Home equity 167
40
51
240
117
Total loan recoveries 1,726
1,407
1,906
4,576
5,034
Net loan charge-offs (2,002 ) (4,319 ) (3,536 ) (9,702 ) (8,286 )
Allowance for loan losses - end of period 103,071
100,015
85,181
103,071
85,181
Allowance for loan losses - acquired loan portfolio
Allowance for loan losses - beginning of period —
—
—
—
—
Provision for loan losses 970
—
579
970
579
Allowance for loan losses - end of period 970
—
579
970
579
Total allowance for loan losses $ 104,041
$ 100,015
$ 85,760
$ 104,041
$ 85,760
Net loan charge-offs as a percent of average loans (annualized) 0.05 % 0.12 % 0.10 % 0.09 % 0.08 %

~~The following schedule summarizes information related to our allowance for loan losses for both originated and acquired loans:~~

September 30, 2018 December 31, 2017
(Dollars in thousands)
Allowance
Amount
Percent of loans in each category to total loans
Allowance
Amount
Percent of loans in each category to total loans
Originated loans:
Commercial $ 33,462
19.9 % $ 25,329
17.0 %
Commercial real estate:
Owner-occupied 17,473
9.0
15,664
8.4
Non-owner occupied 18,305
12.7
18,309
10.7
Vacant land 827
0.3
1,145
0.3
Total commercial real estate 36,605
22.0
35,118
19.4
Real estate construction and land development
4,747
3.7
5,686
3.5
Residential mortgage 15,620
15.4
13,375
13.9
Consumer Installment 9,019
10.0
8,577
10.7
Home equity 3,618
4.1
3,802
4.3
Subtotal — originated loans 103,071
75.1 % 91,887
68.8 %
Acquired loans 970
24.9
—
31.2
Total $ 104,041
100.0 % $ 91,887
100.0 %

~~Deposits~~

Total deposits were $15.44 billion at September 30, 2018, an increase of $1.80 billion, or 13.2%, from total deposits of $13.64 billion at December 31, 2017. The increase in total deposits during the nine months ended September 30, 2018 was spread across all deposit types. Interest- and noninterest-bearing checking deposits, money market and savings accounts totaled $11.27 billion at September 30, 2018, compared to $10.11 billion at December 31, 2017. Time and brokered deposits totaled $4.17 billion at September 30, 2018, compared to $3.54 billion at December 31, 2017.

It is our strategy to develop customer relationships that will drive core deposit growth and stability. Our competitive position within many of our market areas has historically limited our ability to materially increase core deposits without adversely impacting the weighted average cost of the deposit portfolio. While competition for core deposits remained strong throughout our markets during the nine months ended September 30, 2018, our efforts to expand deposit relationships with existing and new customers, our financial strength, and a general trend in customers holding more liquid assets have resulted in continued increases in customer deposits.

At September 30, 2018, time deposits, which consist of certificates of deposit, including CDARS, IRA deposits and other brokered funds, totaled $3.87 billion, of which $661.6 million have stated maturities during the remainder of 2018. We expect the majority of these maturing time deposits to be renewed by customers. The following schedule summarizes the scheduled maturities of our time deposits as of September 30, 2018:

(Dollars in thousands) Amount
Weighted
Average
Interest Rate
2018 remaining maturities $ 661,635
1.3 %
2019 maturities 2,212,440
1.8
2020 maturities 730,621
2.1
2021 maturities 148,038
1.5
2022 maturities 82,155
1.6
2023 maturities and beyond 30,600
1.6
Total time deposits $ 3,865,489
1.8 %

The below table presents the maturity distribution of time deposits of $250,000 or more at September 30, 2018. Time deposits of $250,000 or more totaled $2.14 billion and represented 13.9% of total deposits at September 30, 2018.

September 30, 2018
(Dollars in thousands) Amount Percent
Maturity:
Within 3 months $ 547,983
25.6 %
After 3 but within 6 months 441,970
20.6
After 6 but within 12 months 802,822
37.5
After 12 months 348,026
16.3
Total $ 2,140,801
100.0 %

~~Borrowed Funds and Other Short-Term Liabilities~~

Borrowed funds consist of short-term and long-term borrowings. Other short-term liabilities consist of collateralized customer deposits. Short-term borrowings, which generally have an original term to maturity of 30 days or less, consist of short-term Federal Home Loan Bank ("FHLB") advances and federal funds purchased which are utilized by us to fund short-term liquidity needs. Long-term borrowings consist of long-term FHLB advances and subordinated debt obligations. Long-term borrowings also included a non-revolving line-of-credit as of December 31, 2017.

~~Other Short-term Liabilities~~

Other short-term liabilities consist of collateralized customer deposits, which represent funds deposited by customers that are collateralized by investment securities owned by Chemical Bank, as these deposits are not covered by Federal Deposit Insurance Corporation ("FDIC") insurance. These funds have been a stable source of liquidity for Chemical Bank, much like our core deposit base, and are generally only provided to customers that have an established banking relationship with Chemical Bank. Our collateralized customer deposits do not qualify as sales for accounting purposes. Collateralized customer deposits were $377.5 million at September 30, 2018, compared to $415.2 million at December 31, 2017.

~~Short-term Borrowings~~

Short-term borrowings were $1.67 billion at September 30, 2018, compared to $2.00 billion at December 31, 2017 and were comprised solely of FHLB borrowings. FHLB advances are borrowings from the Federal Home Loan Bank that are generally used to fund loans and are secured by both a blanket security agreement of residential mortgage first lien and other real estate loans with an aggregate book value equal to at least 140% of the advances and FHLB capital stock owned by Chemical Bank. The carrying value of loans eligible as collateral under the blanket security agreement was $7.62 billion at September 30, 2018. The average daily balance, average interest rate during the period and maximum month-end balance of short-term FHLB advances during the nine months ended September 30, 2018 were $2.1 billion, 1.81% and $2.4 billion, respectively. We rely on short-term FHLB advances to cover short-term liquidity needs.

~~Long-term Borrowings~~

~~Long-term borrowings were $431.0~~$253.5 million and ~~$372.9~~$755.3 million ~~at September 30, 2018 and December 31, 2017, respectively. Our line-of-credit relationship was repaid in the second quarter of 2018 and the contract ended in the third quarter of 2018.~~

~~A summary of the composition of our long-term borrowings follows:~~

(Dollars in thousands) September 30, 2018 December 31, 2017
Long-term borrowings:
Long-term FHLB advances $ 415,118
$ 337,204
Non-revolving line-of-credit —
19,963
Subordinated debt obligations 15,853
15,715
Total long-term borrowings $ 430,971
$ 372,882

~~Credit-Related Commitments~~

~~We have credit-related commitments that may impact our liquidity. The following schedule summarizes our credit-related commitments and expected expiration dates by period as of~~ ~~September 30, 2018. Because many of these commitments historically have expired without being drawn upon, the total amount of these commitments does not necessarily represent future liquidity requirements. Refer to~~ ~~Note 11~~ ~~to our Consolidated Financial Statements for a further discussion of these obligations.~~

(Dollars in thousands)
Less than
1 year

1-3
years

3-5
years

More than
5 years
Total
Unused commitments to extend credit:
Loans to commercial borrowers $ 1,201,852
$ 702,221
$ 288,265
$ 299,456
$ 2,491,794
Loans to consumer borrowers 110,947
134,122
154,244
212,652
611,965
Total unused commitments to extend credit 1,312,799
836,343
442,509
512,108
3,103,759
Undisbursed loan commitments⁽¹⁾
600,747
—
—
—
600,747
Standby letters of credit 66,866
20,353
21,772
17,081
126,072
Total credit-related commitments $ 1,980,412
$ 856,696
$ 464,281
$ 529,189
$ 3,830,578


⁽¹⁾	~~Excludes $120.2 million of residential mortgage loan originations that were expected to be sold in the secondary market.~~

~~Capital~~

Capital supports current operations and provides the foundation for future growth and expansion. Our total shareholders' equity was $2.79 billion at September 30, 2018, an increase of $120.2 million, or 4.5%, from total shareholders' equity of $2.67 billion at December 31, 2017. Our total shareholders' equity as a percentage of total assets was 13.3% at September 30, 2018, compared to 13.8% at December 31, 2017. Our tangible shareholders' equity, which is defined as total shareholders' equity less goodwill and other acquired intangible assets, totaled $1.63 billion at September 30, 2018 and $1.51 billion at December 31, 2017. Our tangible shareholders' equity to tangible assets ratio was 8.3% at both September 30, 2018 and December 31, 2017. Tangible shareholders' equity and the tangible shareholders' equity to tangible assets ratio are non-GAAP financial measures. Please refer to the section entitled "Non-GAAP Financial Measures."

~~Regulatory Capital~~

Under the regulatory "risk-based" capital guidelines in effect for both banks and bank holding companies, minimum capital levels are based upon perceived risk in the Corporation's and Chemical Bank's various asset categories. These guidelines assign risk weights to on- and off-balance sheet items in arriving at total risk-weighted assets. Regulatory capital is divided by the computed total of risk-weighted assets to arrive at the risk-based capital ratios. Risk-weighted assets of the Corporation and Chemical Bank totaled $15.30 billion and $15.26 billion at September 30, 2018, respectively, compared to $14.74 billion and $14.70 billion at December 31, 2017, respectively. The increase in risk-weighted assets during the nine months ended September 30, 2018 was primarily attributable to loan growth and increases in our investment securities portfolio.

In July 2013, the Federal Reserve Board and FDIC approved final rules implementing the Basel Committee on Banking Supervision's ("BCBS") capital guidelines for U.S. banks (commonly referred to as "Basel III"). Beginning January 1, 2015, the Basel III capital rules include a new minimum common equity Tier 1 capital to risk-weighted assets ("CET Tier 1") ratio of 4.5%, in addition to raising the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and requiring a minimum leverage ratio of 4.0%. The Basel III capital rules also establish a new capital conservation buffer of 2.5% of risk-weighted assets, which is phased-in over a four-year period beginning January 1, 2016.

The Corporation and Chemical Bank both continue to maintain strong capital positions, which exceeded the minimum capital adequacy levels prescribed by the Board of Governors of the Federal Reserve System (Federal Reserve) at September 30, 2018, as shown in the following schedule:

September 30, 2018
Leverage Ratio Risk-Based Capital Ratios
CET Tier 1 Tier 1 Total
Actual Capital Ratios:
Chemical Financial Corporation 8.6 % 10.9 % 10.9 % 11.7 %
Chemical Bank 8.6
10.8
10.8
11.6
Minimum required for capital adequacy purposes 4.0
4.5
6.0
8.0
Minimum required for “well-capitalized” capital adequacy purposes 5.0
6.5
8.0
10.0

As of September 30, 2018, the Corporation and Chemical Bank's capital ratios exceeded the minimum levels required to be categorized as well-capitalized, as defined by applicable regulatory requirements. See ~~Note 16~~ ~~to the Consolidated Financial Statements for more information regarding the Corporation's and Chemical Bank's regulatory capital ratios.~~

~~Results of Operations~~

~~Overview~~

Our net income was $70.4 million, or $0.98 per diluted share, in the third quarter of 2018, compared to net income of $69.0 million, or $0.96 per diluted share, in the second quarter of 2018, and net income of $40.5 million, or $0.56 per diluted share, in the third quarter of 2017. Net income in the third quarter of 2017, excluding significant items, a non-GAAP financial measure, was $54.2 million, or $0.76 per diluted share. Significant items consisted of $21.2 million of merger and restructuring expenses in the third quarter of 2017. We had no significant items in the third quarter of 2018 or the second quarter of 2018. The increase in net income in the third quarter of 2018, compared to the second quarter of 2018, was driven by an increase in our net interest income resulting from increases in average balances and yields earned on our loan and investment security portfolios. The increase in net income, excluding significant items, in the third quarter of 2018, compared to the third quarter of 2017, was primarily attributable to an increase in net interest income primarily due to increases in average balances and yields earned on our loan portfolio and an increase in investment securities.

~~Our net income was $211.0 million, or $2.93 per diluted share,~~ for the nine months ended September 30, 2018, compared to net income of $140.1 million, or $1.95 per diluted share, for the nine months ended September 30, 2017. Net income for the nine months ended September 30, 2017, excluding significant items, net of tax, a non-GAAP financial measure, was $156.9 million, or $2.19 per diluted share. Significant items consisted of $25.8 million of merger and restructuring expenses for the nine months ended September 30, 2017. We had no significant itemssame periods in ~~the nine months ended September 30,~~ 2018. The increase in net income in the nine months ended September 30, 2018, excluding significant items, compared to the nine months ended September 30, 2017, was primarily driven by an increase in net interest income, largely due to an increase in average balances and yields earned on loans and investment securities, partially offset by increases in average deposit balances and cost of funds, as well as the benefit from a decrease in our income tax following the enactment of the Tax Cuts and Jobs Act, which reduced the federal corporate tax rate to 21% from 35%, effective January 1, 2018.

Return on average assets was 1.37% in the third quarter of 2018, compared to 1.39% in the second quarter of 2018 and 0.86% in the third quarter of 2017. Return on average assets in the third quarter of 2017, excluding significant items, a non-GAAP financial measure, net of tax was 1.15%. Return on average shareholders' equity was 10.2% in both the third quarter of 2018 and in the second quarter of 2018, compared to 6.1% in the third quarter of 2017. Return on average shareholders' equity in the third quarter of 2017, excluding significant items, a non-GAAP financial measure, was 8.2%. Our return on average tangible shareholders' equity was 17.5% in the third quarter of 2018, compared to 17.8% in the second quarter of 2018 and 10.9% in the third quarter of 2017. Our return on average tangible equity in the third quarter of 2017, excluding significant items, a non-GAAP financial measure, was 14.6%.

Return on average assets was 1.41% in the nine months ended September 30, 2018, compared to 1.03% in the nine months ended September 30, 2017. Return on average assets in the nine months ended September 30, 2017, excluding significant items, a non-GAAP financial measure, was 1.15%. Return on average shareholders' equity in the nine months ended September 30, 2018 was 10.3%, compared to 7.2% in the nine months ended September 30, 2017. Return on average shareholders' equity in the nine months ended September 30, 2017, excluding significant items, a non-GAAP financial measure, was 8.0%. Our return on average

tangible shareholders' equity was 18.0% in the nine months ended September 30, 2018, compared to 12.8% in the nine months ended September 30, 2017. Our return on average tangible equity in the nine months ended September 30, 2017, excluding significant items, a non-GAAP financial measure, was 14.4%.

Please refer to the section entitled "Non-GAAP Financial Measures" included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.

~~Net Interest In~~c~~ome~~

Net interest income, is the difference between interest income on earning assets, such as loans, investment and non-marketable equity securities and interest-bearing deposits with the Federal Reserve Bank (FRB) and other banks, and interest expense on liabilities, such as deposits and borrowings. Net interest income is our largest source of net revenue (net interest income plus noninterest income), ~~representing 80.8%~~represented 79.78% and 74.11% of ~~net~~our total revenue for the ~~third quarter of 2018, compared to 80.6% for the second quarter of 2018~~three and ~~81.7% for the third quarter of 2017. Net interest income represented 80.1% of net revenue during the~~ nine months ended September 30, ~~2018,~~2019, respectively, compared ~~to 78.7% during~~with 69.35% and 69.56% for the same periods in 2018. The increases in net interest income for the three and nine months ended September 30, ~~2017.~~ 2019, compared to the same periods in 2018, were primarily attributable to the increase in interest-earning assets acquired in the Merger, partially offset by the increase in interest-bearing liabilities acquired in the Merger.

Net interest income, on a fully ~~taxable equivalent (FTE)~~tax-equivalent ("FTE") basis, is the difference between interest income and interest expense adjusted for the tax benefit received on tax-exempt ~~commercial~~ loans, leases and investment securities. Net interest margin (FTE) is calculated by dividing net interest income (FTE) by average interest-earning assets, expressed as a percentage, annualized as applicable. Net interest ~~spread is the difference between the average yield on interest-earning assets~~income and ~~the average cost of interest-bearing liabilities. Because noninterest-bearing sources of funds, or free funds (principally demand deposits and shareholders' equity), also support earning assets, the~~ net interest margin ~~exceeds~~are affected by (i) changes in prevailing short- and long-term interest rates, (ii) loan, lease and deposit pricing strategies and competitive conditions, (iii) the volume and mix of interest-earning assets, noninterest-bearing deposits and interest-bearing liabilities, (iv) the level of nonaccrual loans and leases and other real estate owned and (v) the impact of modified loans and leases. Net interest margin (FTE) was 4.14% and 4.36% for the three and nine months ended September 30, 2019, respectively, compared with 4.73% and 4.70% for the same periods in 2018. The decrease in net interest ~~spread.~~margin (FTE) for the three and nine months ended September 30, 2019, compared to the same periods in 2018, was primarily due to a decrease in the yield earned on loans and leases added as a result of the lower average yields added to the portfolio through the Merger.

~~Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates~~

Table of Contents

The following tables present the average ~~daily~~ balances of our major categories of assets and liabilities, interest income and expense on a ~~fully tax equivalent (FTE)~~FTE basis, average interest rates earned and paid on the assets and liabilities, net interest income (FTE), net interest spread and net interest margin for the three months ended September 30, ~~2018, June 30, 2018~~2019 and September 30, ~~2017~~2018 and for the nine months ended September 30, ~~2018~~2019 and September 30, ~~2017.~~2018. The presentation of net interest income on ana FTE basis is not in accordance with GAAP but is customary in the banking industry. This non-GAAP measure ensures comparability of net interest income arising from both taxable and tax-exempt loans and investment securities. ~~Please refer to the section entitled "Non-GAAP Financial Measures."~~

Three Months Ended
September 30, 2018
June 30, 2018 September 30, 2017
(Dollars in thousands)
Average
Balance

Interest (FTE)
Effective
Yield/
Rate⁽¹⁾

Average
Balance Interest (FTE)
Effective
Yield/
Rate⁽¹⁾

Average
Balance

Interest (FTE)
Effective
Yield/
Rate⁽¹⁾
Assets
Interest-earning Assets:

Loans⁽¹⁾⁽²⁾
$ 14,740,445
$173,453 4.68 % $ 14,389,574
$166,125 4.63 % $ 13,795,750
$149,595 4.31 %
Taxable investment securities 2,187,644
16,360
2.99
2,019,003
14,706
2.91
1,629,344
9,326
2.29
Tax-exempt investment securities⁽¹⁾
1,038,301
7,797
3.00
1,020,567
7,592
2.98
896,854
7,013
3.13
Other interest-earning assets 193,350
1,368
2.81
189,654
2,189
4.63
180,188
1,039
2.29
Interest-bearing deposits with the FRB and other banks and federal funds sold 330,940
1,785
2.14
228,464
1,301
2.28
313,104
1,231
1.56
Total interest-earning assets 18,490,680
200,763 4.32
17,847,262
191,913
4.31
16,815,240
168,204
3.98
Less: Allowance for loan losses (101,689 ) (96,332 ) (84,640 )
Other assets:
Cash and cash due from banks 223,038
219,751
250,743

Premises and equipment 125,153
126,570
146,266

Interest receivable and other assets 1,764,041
1,753,742
1,730,539

Total assets $ 20,501,223
$ 19,850,993
$ 18,858,148

Liabilities and shareholders' equity

Interest-bearing Liabilities:

Interest-bearing checking deposits $ 2,705,746
$ 2,836
0.42 % $ 2,597,610
$ 1,393
0.22 % $ 2,725,807
$ 1,321
0.19 %
Savings deposits 4,378,620
8,417
0.76
4,116,683
6,074
0.59
4,012,299
3,985
0.39
Time deposits 3,846,857
15,997
1.65
3,468,395
12,240
1.42
3,007,109
7,620
1.01
Collateralized customer deposits 374,833
721
0.76
399,911
641
0.64
385,976
462
0.47
Short-term borrowings 1,885,741
9,510
2.00
2,249,655
10,408
1.86
1,894,022
6,129
1.28
Long-term borrowings 341,282
1,415
1.65
336,985
1,289
1.53
426,155
1,799
1.67
Total interest-bearing liabilities 13,533,079
38,896
1.14
13,169,239
32,045
0.98
12,451,368
21,316
0.68
Noninterest-bearing deposits 4,004,433
—
—
3,792,803
—
—
3,643,765
—
—
Total deposits and borrowed funds 17,537,512
38,896
0.88
16,962,042
32,045
0.76
16,095,133
21,316
0.53
Interest payable and other liabilities 194,610
181,605
119,782

Shareholders’ equity 2,769,101
2,707,346
2,643,233

Total liabilities and shareholders’ equity $ 20,501,223
$ 19,850,993
$ 18,858,148

Net Interest Spread (Average yield earned minus average rate paid)

3.18 %
3.33 %

3.30 %
Net Interest Income (FTE)

$161,867

$159,868

$146,888

Net Interest Margin (Net interest income (FTE) divided by total average interest-earning assets)

3.48 % 3.59 % 3.48 %

Reconciliation to Reported Net Interest Income
Net interest income, fully taxable equivalent (non-GAAP) $161,867 $159,868 $146,888
Adjustments for taxable equivalent interest^(1):

Loans (767 ) (737 ) (824 )
Tax-exempt investment securities (1,619 ) (1,594 ) (2,436 )
Total taxable equivalent interest adjustments (2,386 ) (2,331 ) (3,260 )
Net interest income (GAAP) $159,481 $157,537 $143,628
Net interest margin (GAAP) 3.42 % 3.54 % 3.40 %

(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the three months ended September 30, 2018 and June 30, 2018 and 35% for the three months ended September 30, 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry. Please refer to the section entitled "Non-GAAP Financial Measures."
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

Nine Months Ended
September 30, 2018 September 30, 2017

Average
Balance
Interest (FTE)
Effective
Yield/Rate ⁽¹⁾

Average
Balance
Interest (FTE)
Effective
Yield/Rate⁽¹⁾
Assets
Interest-earning assets:
Loans⁽¹⁾⁽²⁾
$ 14,453,537
$ 497,146
4.60 % $ 13,490,851
$ 425,016
4.21 %
Taxable investment securities 1,997,700
43,485
2.90
1,335,349
21,207
2.12
Tax-exempt investment securities⁽¹⁾
1,023,090
22,422
2.92
880,398
20,290
3.07
Other interest-earning assets 187,745
5,458
3.89
150,203
2,906
2.59
Interest-bearing deposits with the FRB and other banks and federal funds sold 274,353
4,326
2.11
294,967
3,052
1.38
Total interest-earning assets 17,936,425
572,837
4.27
16,151,768
472,471
3.91
Less: Allowance for loan losses (96,923 ) (81,337 )
Other assets:
Cash and cash due from banks 223,136
234,379

Premises and equipment 126,150
145,877

Interest receivable and other assets 1,757,251
1,753,337

Total assets $ 19,946,039
$ 18,204,024

Liabilities and shareholders' equity
Interest-bearing Liabilities:
Interest-bearing checking deposits $ 2,689,982
$ 5,454
0.27 % $ 2,768,209
$ 3,628
0.18 %
Savings deposits 4,181,983
19,427
0.62
3,912,672
8,753
0.30
Time deposits 3,528,080
37,993
1.44
2,973,070
20,043
0.90
Collateralized customer deposits 394,481
1,886
0.64
352,629
808
0.31
Short-term borrowings 2,063,083
28,084
1.82
1,495,696
12,100
1.08
Long-term borrowings 350,214
4,168
1.59
479,344
5,968
1.66
Total interest-bearing liabilities 13,207,823
97,012
0.98
11,981,620
51,300
0.57
Noninterest-bearing deposits 3,829,764
—
—
3,484,125
—
—
Total deposits and borrowed funds 17,037,587
97,012
0.76
15,465,745
51,300
0.44
Interest payable and other liabilities 187,632
126,649

Shareholders' equity 2,720,820
2,611,630

Total liabilities and shareholders' equity $ 19,946,039
$ 18,204,024

Net Interest Spread (Average yield earned minus average rate paid) 3.29 % 3.34 %
Net Interest Income (FTE) $ 475,825
$ 421,171

Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.54 % 3.48 %

Reconciliation to Reported Net Interest Income
Net interest income, fully taxable equivalent (non-GAAP) $ 475,825
$ 421,171

Adjustments for taxable equivalent interest ⁽¹⁾:

Loans (2,254 ) (2,446 )
Tax-exempt investment securities (4,690 ) (7,052 )
Total taxable equivalent interest adjustments (6,944 ) (9,498 )
Net interest income (GAAP) $ 468,881
$ 411,673

Net interest margin (GAAP) 3.49 % 3.40 %



	Three Months Ended September 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:
Federal Home Loan Bank and Federal Reserve Bank stocks	$	230,767	$	806		1.39	%	$	87,485	$	1,057		4.81	%
Investment securities held-to-maturity	143,078		602			1.68		153,652		988			2.57
Investment securities available-for-sale:
Taxable	4,232,878		30,436			2.88		1,525,665		10,511			2.76
Tax-exempt⁽³⁾	643,576		4,283			2.66		823,854		5,478			2.66
Loans and leases held-for-sale	118,482		1,408			4.74		216,669		3,625			6.64
Loans and leases^(1)(3)(4)	29,503,475		418,960			5.62		18,416,310		270,129			5.82
Interest-bearing deposits with banks and other	933,014		5,800			2.44		218,771		2,031			3.69
Total interest-earning assets	35,805,270		462,295			5.11		21,442,406		293,819			5.44
Other assets	3,289,096							1,461,998
Total assets	$	39,094,366						$	22,904,404
Liabilities and Equity:
Noninterest-bearing deposits	$	6,564,195						$	3,874,421
Interest-bearing deposits:
Checking	4,805,843		5,520			0.46		2,427,288		234			0.04
Savings	7,676,165		14,110			0.73		5,620,161		4,994			0.35
Money market	3,490,922		13,037			1.48		1,496,223		2,941			0.78
Certificates of deposit	7,320,720		38,233			2.07		4,868,286		19,310			1.57
Total interest-bearing deposits	23,293,650		70,900			1.21		14,411,958		27,479			0.76
Total deposits	29,857,845		70,900			0.94		18,286,379		27,479			0.60
Borrowings:
Short-term borrowings	1,884,228		5,345			1.11		3,357		21			2.44
Long-term borrowings	1,472,150		11,769			3.17		1,351,585		10,705			3.13
Total borrowings	3,356,378		17,114			2.01		1,354,942		10,726			3.13
Total interest-bearing liabilities	26,650,028		88,014			1.31		15,766,900		38,205			0.96
Total deposits and borrowings	33,214,223		88,014			1.05		19,641,321		38,205			0.77
Accrued expenses and other liabilities	1,197,014							751,100
Total liabilities	34,411,237							20,392,421
Total TCF Financial Corporation shareholders' equity	4,657,613							2,488,435
Non-controlling interest in subsidiaries	25,516							23,548
Total equity	4,683,129							2,511,983
Total liabilities and equity	$	39,094,366						$	22,904,404
Net interest spread (FTE)						4.06							4.67
Net interest income (FTE) and net interest margin (FTE)			$	374,281		4.14				$	255,614		4.73
Reconciliation to Reported Net Interest Income
Net interest income (FTE)			$	374,281						$	255,614
Adjustments for taxable equivalent interest⁽¹⁾⁽³⁾
Loans and leases			$	(1,590	)					$	(962	)
Tax-exempt investment securities			(898		)					(1,150		)
Total FTE adjustments			(2,488		)					(2,112		)
Net interest income (GAAP)			$	371,793						$	253,502
Net interest margin (GAAP)			4.12		%					4.69		%


(1)	~~Fully taxable equivalent (FTE)~~Interest and yields are presented on a FTE basis.


(2)	Annualized.


(3)	The yield on tax-exempt loans, leases and investment securities available-for-sale is computed on a FTE basis using a statutory federal income tax rate of 21%.


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

Table of Contents



	Nine Months Ended September 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:
Federal Home Loan Bank and Federal Reserve Bank stocks	$	149,801	$	2,860		2.55	%	$	90,600	$	2,698		3.98	%
Investment securities held-to-maturity	145,627		2,061			1.89		156,170		3,005			2.57
Investment securities available-for-sale:
Taxable	3,029,754		67,684			2.98		1,258,708		24,487			2.59
Tax-exempt⁽³⁾	461,499		9,210			2.66		824,551		16,444			2.66
Loans and leases held-for-sale	71,739		2,832			5.27		108,992		5,281			6.48
Loans and leases^(1)(3)(4)	22,681,170		987,504			5.80		18,918,591		809,751			5.71
Interest-bearing deposits with banks and other	494,007		10,878			2.92		225,203		6,023			3.58
Total interest-earning assets	27,033,597		1,083,029			5.33		21,582,815		867,689			5.36
Other assets	2,249,678							1,448,293
Total assets	$	29,283,275						$	23,031,108
Liabilities and Equity:
Noninterest-bearing deposits	$	4,831,271						$	3,833,543
Interest-bearing deposits:
Checking	3,256,409		6,347			0.26		2,449,723		466			0.03
Savings	6,799,432		37,094			0.73		5,520,287		11,895			0.29
Money market	2,144,697		22,078			1.38		1,588,210		7,970			0.67
Certificates of deposit	5,500,105		83,635			2.03		4,924,804		53,897			1.46
Total interest-bearing deposits	17,700,643		149,154			1.13		14,483,024		74,228			0.69
Total deposits	22,531,914		149,154			0.88		18,316,567		74,228			0.54
Borrowings:
Short-term borrowings	838,750		9,433			1.48		3,473		58			2.23
Long-term borrowings	1,543,398		38,616			3.32		1,435,088		31,792			2.94
Total borrowings	2,382,148		48,049			2.67		1,438,561		31,850			2.93
Total interest-bearing liabilities	20,082,791		197,203			1.31		15,921,585		106,078			0.89
Total deposits and borrowings	24,914,062		197,203			1.06		19,755,128		106,078			0.72
Accrued expenses and other liabilities	1,052,709							741,222
Total liabilities	25,966,771							20,496,350
Total TCF Financial Corp. shareholders' equity	3,289,946							2,509,625
Non-controlling interest in subsidiaries	26,558							25,133
Total equity	3,316,504							2,534,758
Total liabilities and equity	$	29,283,275						$	23,031,108
Net interest spread (FTE)						4.27							4.64
Net interest income (FTE) and net interest margin (FTE)			$	885,826		4.36				$	761,611		4.70
Reconciliation to Reported Net Interest Income
Net interest income (FTE)			$	885,826						$	761,611
Adjustments for taxable equivalent interest⁽¹⁾⁽³⁾
Loans			(3,614		)					(2,816		)
Tax-exempt investment securities			(1,933		)					(3,453		)
Total FTE adjustments			(5,547		)					(6,269		)
Net interest income (GAAP)			$	880,279						$	755,342
Net interest margin (GAAP)			4.35		%					4.68		%


(1)	Interest and yields are presented on a FTE basis.


(2)	Annualized.


(3)	The yield on tax-exempt loans, leases and investment securities available-for-sale is computed on a FTE basis using a statutory federal income tax rate of 21%.


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

Table of Contents

Volume and Rate Variance Analysis



	Three Months Ended September 30, 2019 vs. 2018									Nine Months Ended September 30, 2019 vs. 2018
	Increase (Decrease) Due to Changes in									Increase (Decrease) Due to Changes in
(Dollars in thousands)	Average Volume⁽¹⁾			Average Yield/Rate⁽¹⁾			Total Change			Average Volume⁽¹⁾			Average Yield/Rate⁽¹⁾			Total Change
Changes in Interest Income on Interest-Earning Assets:
Federal Home Loan Bank and Federal Reserve Bank stocks	$	873		$	(1,124	)	$	(251	)	$	1,355		$	(1,193	)	$	162
Investment securities held to maturity	(64		)	(322		)	(386		)	(192		)	(752		)	(944		)
Investment securities available for sale:
Taxable	19,446			479			19,925			39,077			4,120			43,197
Tax-exempt	(1,200		)	5			(1,195		)	(7,246		)	12			(7,234		)
Loans and leases held for sale	(1,358		)	(859		)	(2,217		)	(1,586		)	(863		)	(2,449		)
Loans and leases	158,371			(9,540		)	148,831			164,581			13,172			177,753
Interest-bearing deposits with banks and other	4,670			(901		)	3,769			6,149			(1,294		)	4,855
Total interest-earning assets	$	180,738		$	(12,262	)	$	168,476		$	202,138		$	13,202		$	215,340
Changes in Interest Expense on Interest-Bearing Liabilities:
Interest-bearing deposits:
Checking	$	435		$	4,851		$	5,286		$	202		$	5,679		$	5,881
Savings	2,325			6,791			9,116			3,311			21,888			25,199
Money market	6,028			4,068			10,096			3,527			10,581			14,108
Certificates of deposit	11,616			7,307			18,923			6,865			22,873			29,738
Interest-bearing deposits	20,404			23,017			43,421			13,905			61,021			74,926
Short-term borrowings	5,342			(18		)	5,324			9,401			(26		)	9,375
Long-term borrowings	940			124			1,064			2,516			4,308			6,824
Total interest-bearing liabilities	$	26,686		$	23,123		$	49,809		$	25,822		$	65,303		$	91,125
Total change in net interest income (FTE)⁽²⁾	$	154,052		$	(35,385	)	$	118,667		$	176,316		$	(52,101	)	$	124,215


(1)	Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.


(2)	FTE basis using a federal income tax rate of 21% for the three and nine months ended September 30, ~~2018~~2019 and ~~35% for the nine months ended September 30, 2017.~~2018. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.


~~(2)~~	~~Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.~~

~~Net interest income (FTE) of $161.9~~Provision for Credit Losses The provision for credit losses was $27.2 million and $50.9 million for the three and nine months ended September 30, 2019, respectively, compared with $2.3 million and $27.9 million for the same periods in the third quarter of 2018 was $2.0 million, or 1.3%, higher than net interest income (FTE) of $159.9 million in the second quarter of 2018, and 10.2% higher than net interest income (FTE) of $146.9 million in the third quarter of 2017.2018. The ~~increase in net interest income (FTE) in the third quarter of 2018, compared to~~increases from both the ~~second quarter of~~three and nine months ended September 30, 2018 and the third quarter of 2017, was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in our average balances of deposits and funding costs. The net interest margin (FTE) was 3.48% in the third quarter of 2018, compared to 3.59% in the second quarter of 2018 and 3.48% in the third quarter of 2017. The decrease in the net interest margin (FTE), in the third quarter of 2018, compared to the second quarter of 2018, waswere primarily due to an increase in ~~average deposit balances~~commercial and ~~cost of funds. Our~~industrial net ~~interest margin (FTE)~~charge-offs in the ~~third quarter of 2018~~three and the third quarter of 2017 remained the same, as the increase in average deposit balances and costs of funds in the third quarter of 2018 was offset by the increase in yield and average balances on loans and investment securities. The average yield on interest-earning assets increased one basis point to 4.32% in the third quarter of 2018, from 4.31% in the second quarter of 2018, and increased 34 basis points compared to 3.98% in the third quarter of 2017. Interest accretion from purchase accounting discounts on acquired loans contributed 23 basis points to our net interest margin (FTE) in the third quarter of 2018, compared to 26 basis points in the second quarter of 2018 and 23 basis points in the third quarter of 2017. The yield on total loans in the third quarter of 2018 of 4.68%, increased five basis points compared to 4.63% in the second quarter of 2018, and increased 37 basis points compared to 4.31% in the third quarter of 2017,nine months ended September 30, 2019 primarily due to ~~higher yields~~one loan relationship. The provision for credit losses is predominantly a function of our reserving methodology used to determine the appropriate level of the allowance for loan and lease losses, which is a critical accounting estimate.

An analysis of the allowance for loan and leases losses is presented under "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis.

Table of Contents

Noninterest Income The components of noninterest income were as follows:



	Three Months Ended September 30,						Change
(Dollars in thousands)	2019			2018			$			% / bps
Fees and service charges on deposit accounts	$	34,384		$	29,175		$	5,209		17.9	%
Leasing revenue	39,590			41,944			(2,354		)	(5.6	)
Wealth management revenue	4,241			—			4,241			N.M.
Card and ATM revenue	23,315			20,074			3,241			16.1
Net (losses) gains on sales of loans and leases	(5,984		)	8,502			(14,486		)	N.M.
Servicing fee revenue	5,121			6,032			(911		)	(15.1	)
Net gains (losses) on investment securities	5,900			94			5,806			N.M.
Other	(12,309		)	6,243			(18,552		)	N.M.
Total noninterest income	$	94,258		$	112,064		$	(17,806	)	(15.9	)
Total noninterest income as a percentage of total revenue	20.2		%	30.7		%				(1,050) bps

	Nine Months Ended September 30,						Change
(Dollars in thousands)	2019			2018			$			%
Fees and service charges on deposit accounts	$	88,504		$	83,703		$	4,801		5.7	%
Leasing revenue	117,032			121,001			(3,969		)	(3.3	)
Wealth management revenue	4,241			—			4,241			N.M.
Card and ATM revenue	62,470			58,313			4,157			7.1
Net (losses) gains on sales of loans and leases	13,374			24,900			(11,526		)	(46.3	)
Servicing fee revenue	14,754			21,811			(7,057		)	(32.4	)
Net gains (losses) on investment securities	7,417			181			7,236			N.M.
Other	(312		)	20,620			(20,932		)	N.M.
Total noninterest income	$	307,480		$	330,529		$	(23,049	)	(7.0	)
Total noninterest income as a percentage of total revenue	25.9		%	30.4		%				(450) bps

N.M. Not Meaningful

Noninterest income was $94.3 million and $307.5 million in the three and nine months ended September 30, 2019, compared to $112.1 million and $330.5 million for the same periods in 2018. Following the Merger, we repositioned our balance sheet to lower our risk profile, reduce asset sensitivity and enhance capital and efficiency. As a result, noninterest income included the following balance sheet repositioning actions considered to be non-core items in the three and nine months ended September 30, 2019: a $19.3 million loss related to the transfer of the Legacy TCF auto finance portfolio to held-for-sale (net (losses) gains on ~~new loan fundings~~sales of loans and leases), a $17.3 million loss related to the ~~benefit from~~termination of interest rate ~~adjustments~~swaps (other noninterest income) and a gain of $5.9 million related to the sale of $1.6 billion of certain investment securities (net gains on ~~variable rate loans during~~investment securities). Noninterest income in the three and nine months ended September 30, 2019 additionally included $4.5 million of loan servicing rights impairment (other noninterest income), also considered a non-core item. Excluding the non-core items, adjusted noninterest income, a non-GAAP financial measure, was $129.5 million and $342.7 million in the three and nine months ended September 30, 2019, compared to $112.1 million and $330.5 million for the same periods in 2018. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Fees and service charges on deposit accounts Fees and service charges on deposit accounts were $34.4 million and $88.5 million for the three and nine months ended September 30, 2019, respectively, compared with $29.2 million and $83.7 million for the same periods in 2018. The ~~average cost of interest-bearing liabilities increased 16 basis points to 1.14% in~~increase from the ~~third quarter of 2018, compared to 0.98% in the second quarter of~~three months ended September 30, 2018 and ~~increased 46 basis points, compared to 0.68% in the third quarter of 2017, primarily due to an increase in funding costs resulting~~ from ~~the rising interest rate environment and deposit growth initiatives we have undertaken.~~

~~Net interest income (FTE) of $475.8 million for~~ the nine months ended September 30, 2018 was ~~$54.6~~primarily attributable to incremental fees resulting from the Merger.

Leasing revenue Leasing revenue was $39.6 million ~~or 13.0%, higher than net interest income (FTE) of $421.2~~and $117.0 million for the three and nine months ended September 30, ~~2017, primarily attributable to increases~~2019, respectively, compared with $41.9 million and $121.0 million for the same periods in ~~average balances~~2018. The decrease from the three months ended September 30, 2018 and ~~yields earned on loans and investment securities, partially offset by an increase in our average balances of deposits and funding costs. The net interest margin (FTE) increased to 3.54% for~~from the nine months ended September 30, 2018 compared to 3.48% for the nine months ended September 30, 2017. The average yield on interest-earning assets increased 36 basis points to 4.27% in the nine months ended September 30, 2018 from 3.91% in the nine months ended September 30, 2017. The increase in our investment securities portfolio was primarily due to management's long-term plan to increase investment securities as a percent of total assets. Interest accretion from purchase accounting discounts on acquired loans contributed 26 basis points to our net interest margin (FTE) in the nine months ended September 30, 2018, compared to 19 basis points in the nine months ended September 30, 2017. The average cost of interest-bearing liabilities increased 41 basis points to 0.98% in the nine months ended September 30, 2018, from 0.57% in the nine months ended September 30, 2017, primarily due to an increase in funding costs resulting from a rising interest rate environment combined with an increase in average balances of deposits and short-term borrowings.

Changes in our net interest income are influenced by a variety of factors, including changes in the level and mix of interest-earning assets and interest-bearing liabilities, current and prior years' interest rate changes, the level and direction of interest rates, the difference between short-term and long-term interest rates (the steepness of the yield curve) and the general strength of the economies in our markets. Risk management plays an important role in our level of net interest income. The ineffective management of credit risk, and more significantly interest rate risk, can adversely impact our net interest income. Management monitors our Consolidated Statements of Financial Position to seek to reduce the potential adverse impact on net interest income caused by significant changes in interest rates. Our policies in this regard are further discussed under the subheading "Market Risk."

The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, increased to 5.25% in September 2018 from the previous rates of 5.00% in June 2018, 4.75% in January 2018 and from 4.50% in December 2017. The prime interest rate has historically been 300 basis points higher than the federal funds rate. The majority of our variable interest rate loans in the commercial loan portfolio are tied to the prime rate.

~~We are primarily funded by core deposits, which is a lower-cost funding base than wholesale funding and historically has had a positive impact on our net interest income and net interest margin.~~

~~Volume and Rate Variance Analysis~~

The below tables present the effect of volume and rate changes on interest income and expense. Changes in volume are changes in the average balance multiplied by the previous year's average rate. Changes in rate are changes in the average rate multiplied by the average balance from the previous year. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

Three Months Ended September 30, 2018
Compared to Three Months Ended June 30, 2018 Compared to Three Months Ended September 30, 2017
Increase (Decrease)
Due to Changes in Increase (Decrease)
Due to Changes in

(Dollars in thousands)
Average
Volume⁽¹⁾

Average
Yield/Rate⁽¹⁾
Combined Increase/
(Decrease)
Average
Volume⁽¹⁾

Average
Yield/Rate⁽¹⁾

Combined Increase/
(Decrease)
Changes in Interest Income on Interest-Earning Assets:

Loans $ 4,971
$ 2,357
$ 7,328
$ 11,605
$ 12,253
$ 23,858
Taxable investment securities/other assets 1,287
(454 ) 833
3,822
3,541
7,363
Tax-exempt investment securities 148
57
205
1,092
(308 ) 784
Interest-bearing deposits with the FRB and other banks 509
(25 ) 484
43
511
554
Total change in interest income on interest-earning assets 6,915
1,935
8,850
16,562
15,997
32,559
Changes in Interest Expense on Interest-Bearing Liabilities:
Interest-bearing demand deposits 76
1,367
1,443
(19 ) 1,534
1,515
Savings deposits 927
1,416
2,343
1,052
3,380
4,432
Time deposits 995
2,762
3,757
2,962
5,415
8,377
Collateralized customer deposits (30 ) 110
80
(6 ) 265
259
Short-term borrowings (1,787 ) 889
(898 ) (27 ) 3,408
3,381
Long-term borrowings 15
111
126
(362 ) (22 ) (384 )
Total change in interest expense on interest-bearing liabilities 196
6,655
6,851
3,600
13,980
17,580
Total Change in Net Interest Income (FTE)⁽²⁾
$ 6,719
$ (4,720 ) $ 1,999
$ 12,962
$ 2,017
$ 14,979

(1) The change in interest income and interest expense due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(2) Fully taxable equivalent basis using a federal income tax rate of 21% for each three month period during 2018 and 35% for the three month period ended in 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.

Nine Months Ended September 30, 2018 Compared to
Nine Months Ended September 30, 2017
Increase (Decrease)
Due to Changes in Combined Increase/
(Decrease)
(Dollars in thousands)
Average
Volume⁽¹⁾

Average
Yield/Rate⁽¹⁾

Changes in Interest Income on Interest-Earning Assets:
Loans $ 34,514
$ 37,616
$ 72,130
Taxable investment securities/other assets 13,692
11,138
24,830
Tax-exempt investment securities 3,177
(1,045 ) 2,132
Interest-bearing deposits with the FRB and other banks (402 ) 1,676
1,274
Total change in interest income on interest-earning assets 50,981
49,385
100,366
Changes in Interest Expense on Interest-Bearing Liabilities:
Interest-bearing demand deposits (112 ) 1,938
1,826
Savings deposits 1,793
8,881
10,674
Time deposits 4,893
13,057
17,950
Collateralized customer deposits 108
970
1,078
Short-term borrowings 5,696
10,288
15,984
Long-term borrowings (1,556 ) (244 ) (1,800 )
Total change in interest expense on interest-bearing liabilities 10,822
34,890
45,712
Total Change in Net Interest Income (FTE)⁽²⁾
$ 40,159
$ 14,495
$ 54,654

(1) The change in interest income and interest expense due to both volume and rate has been allocated to the volume and rate changes in proportion to the
      relationship of the absolute dollar amounts of the change in each.
(2) Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the nine months ended September 30, 2018 and 35% for the nine months
      ended September 30, 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking
      industry.

~~Provision for Loan Losses~~

The provision for loan losses ("provision") is an increase to the allowance, as determined by management, to provide for probable losses inherent in the originated loan portfolio and for impairment in pools of acquired loans that results from us experiencing a decrease, if any, in expected cash flows on acquired loans during each reporting period.

The total provision was $6.0 million in the third quarter of 2018, compared to $9.6 million in the second quarter of 2018 and $5.5 million in the third quarter of 2017. The decrease in the provision in the third quarter of 2018, compared to the second quarter of 2018, was primarily the result of lower net originated loan growth and improvements in both the collateral position of loans that are individually evaluated for impairment and overall credit quality, partially offset by $970 thousand of impairment recorded during the third quarter of 2018 resulting from our quarterly re-estimation of cash flows on acquired loans. The increase in the provision in the third quarter of 2018, compared to the third quarter of 2017, was primarily the result of an increase in impairment recorded as resulting from our quarterly re-estimation of cash flows on acquired loans. Net originated loan growth was $448.9 million in the third quarter of 2018, which was partially offset by $232.4 million of run-off in the acquired loan portfolio during the same period, compared to net originated loan growth of $684.0 million in the second quarter of 2018, partially offset by run-off of $323.1 million in the acquired loan portfolio during the same period, and net originated loan growth of $496.5 million in the third quarter of 2017, partially offset by run-off of $330.5 million in the acquired loan portfolio during the same period.

The total provision was $21.9 million in the nine months ended September 30, 2018, compared to $15.8 million in the nine months ended September 30, 2017. The $6.1 million increase was primarily due to an increase in net originated loan growth and an increase in the impairment recorded resulting from our quarterly re-estimation of cash flows on acquired loans. All acquired loans were recorded at their estimated fair value at each respective acquisition date without a carryover of the related allowance for loan losses and, as of September 30, 2018 and September 30, 2017, the allowance recorded for this population of loans was $970 thousand and $579 thousand, respectively. At December 31, 2017, we determined no allowance was needed for our acquired loan portfolio.

We experienced net loan charge-offs of $2.0 million, or 0.05% of average loans, in the third quarter of 2018, compared to $4.3 million, or 0.12% of average loans, in the second quarter of 2018 and $3.5 million, or 0.10% of average loans, in the third quarter of 2017. The decrease in charge-offs in the third quarter of 2018, compared to both the second quarter of 2018 and the third quarter of 2017, was primarily due to improvements in the collateral position of impaired loans. Net loan charge-offs in the commercial loan portfolios totaled $85 thousand in the third quarter of 2018, compared to $3.0 million in the second quarter of

2018 and $2.5 million in the third quarter of 2017. Net loan charge-offs in the consumer loan portfolios totaled $2.1 million in the third quarter of 2018, compared to $1.3 million in the second quarter of 2018 and $1.0 million in the third quarter of 2017.

Net loan charge-offs were $9.7 million, or 0.09% of average loans, in the nine months ended September 30, 2018, compared to $8.3 million, or 0.08% of average loans, in the nine months ended September 30, 2017. Net loan charge-offs in the commercial loan portfolios totaled $4.7 million in the nine months ended September 30, 2018, compared to $4.2 million in the nine months ended September 30, 2017. Net loan charge-offs in the consumer loan portfolios totaled $5.0 million in the nine months ended September 30, 2018, compared to $4.0 million in the nine months ended September 30, 2017.

~~Noninterest Income~~

~~The following table presents the major components of noninterest income:~~

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30,
2018 June 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
Noninterest income
Service charges and fees on deposit accounts $ 8,187
$ 8,615
$ 9,147
$ 25,265
$ 25,928
Wealth management revenue 6,040
7,188
6,188
19,539
18,973
Electronic banking fees⁽¹⁾
4,793
4,250
4,370
13,100
18,669
Net gain on sale of loans and other mortgage banking revenue⁽²⁾
8,905
8,874
9,282
26,562
30,642
Change in fair value in loan servicing rights⁽²⁾
932
(30 ) (4,041 ) 4,654
(6,362 )
Other fees for customer services⁽¹⁾
1,668
1,607
1,749
4,970
5,055
Insurance commissions⁽¹⁾
20
17
505
39
1,525
Gain on sale of investment securities —
3
1
3
168
Bank-owned life insurance⁽³⁾
1,167
1,669
1,124
3,727
3,441
Rental income⁽³⁾
181
180
280
560
578
Other 6,024
5,645
3,517
18,070
13,083
Total noninterest income $ 37,917
$ 38,018
$ 32,122

$ 116,489
$ 111,700
Noninterest incomeas a percentage of:

Net revenue (net interest income plus noninterest income) 19.2 % 19.4 % 18.3 % 19.9 % 21.3 %
Average total assets (annualized) 0.7 % 0.8 % 0.7 % 0.8 % 0.8 %


~~(1)~~	~~Included within the line item "Other charges and fees for customer services" in the Consolidated Statements of Income.~~


~~(2)~~	~~Included within the line item "Net gain on sale of loans and other mortgage banking revenue" in our Consolidated Statements of Income.~~


~~(3)~~	~~Included within the line item "Other" noninterest income in the Consolidated Statements of Income.~~

Noninterest income was $37.9 million in the third quarter of 2018, compared to $38.0 million in the second quarter of 2018 and $32.1 million in the third quarter of 2017. Noninterest income in the third quarter of 2018 decreased $0.1 million, or 0.3%, compared to the second quarter of 2018, primarily due to a decrease in wealth management revenue of $1.1 million, partially offset by the change in fair value in loan servicing rights of $1.0 million. Noninterest income in the third quarter of 2018 increased $5.8 million, or 18.0%, compared to the third quarter of 2017, primarily due to the change in the impact to earnings from the change in fair value in loan servicing rights of $5.0 million. Noninterest income increased $4.8 million to $116.5 million in the nine months ended September 30, 2018, compared to $111.7 million in the nine months ended September 30, 2017, primarily due to the change in the impact to earnings from the change in fair value in loan servicing rights of $11.0 million and an increase in interest rate swap income of $4.3 million, included within "other" noninterest income, partially offset by decreases in ~~electronic banking fees of $5.6 million~~operating lease revenue and ~~net gain on sale of loans and other mortgage banking revenue of $4.1 million.~~sales-type lease revenue.

Service charges and fees on deposit accounts, which include overdraft/non-sufficient funds fees, checking account fees and other deposit account charges, were $8.2 million in the third quarter of 2018, $8.6 million in the second quarter of 2018, and $9.1 million in the third quarter of 2017. Service charges and fees on deposit accounts decreased $0.4 million, or 5.0%, in the third quarter of 2018, compared to the second quarter of 2018, and $0.9 million, or 10.5%, from the third quarter of 2017. Overdraft/non-sufficient funds fees included in service charges and fees on deposit accounts were $5.4 million in the third quarter of 2018, compared to $6.1 million in the second quarter of 2018 and $6.6 million in the third quarter of 2017. Service charges and fees on deposit accounts were $25.3 million in the nine months ended September 30, 2018, compared to $25.9 million in the nine months ended September 30, 2017.

Wealth management Wealth management revenue is comprised of investment fees that are generally based on the market value of assets within a trust account, custodial ~~account~~ fees and fees from the sale of investment products. ~~Volatility in~~Revenues from wealth management were $4.2 million for both the ~~equity~~three and ~~bond markets impacts the market value of trust assets and related investment fees.~~nine months ended September 30, 2019. Wealth management revenues are a new revenue stream as a result of the Merger.

Table of Contents

Card and ATM revenue Card and ATM revenue was ~~$6.0~~$23.3 million and $62.5 million for the three and nine months ended September 30, 2019, respectively, compared with $20.1 million and $58.3 million for the same periods in 2018. The increase from the ~~third quarter of 2018, compared to $7.2 million in the second quarter of~~three months ended September 30, 2018 and $6.2 million in the third quarter of 2017. Wealth management revenue decreased $1.2 million, or 16.0%, in the third quarter of 2018, compared to the second quarter of 2018, mostly due to seasonal trust fees earned in the second quarter of 2018. Wealth management revenue was $19.5 million infrom the nine months ended September 30, 2018 ~~an increase~~was primarily due to incremental revenue resulting from the Merger.

Net (losses) gains on sales of ~~$0.5~~loans and leases Net losses on sales of loans and leases were $6.0 million ~~or 3.0%, compared to $19.0~~and a net gains of $13.4 million infor the three and nine months ended September 30, ~~2017,~~2019, respectively, compared with net gains of $8.5 million and $24.9 million for the same periods in 2018. The decreases in the three and nine months ended September 30, 2019, compared to the same periods in 2018, were primarily due to ana $19.3 million loss related to the transfer of the Legacy TCF auto finance portfolio to held-for-sale. Excluding the loss related to the auto finance portfolio transfer, the increase ~~in average trust assets under administration.~~

Atfrom both the three and nine months ended September 30, 2018 ~~the estimated fair value~~was primarily due to higher volume of trust assets under administration was $5.13 billion (comprised of discretionary assets of $2.69 billion and nondiscretionary assets of $2.44 billion), and was $5.13 billion at December 31, 2017 (comprised of discretionary assets of $2.67 billion and nondiscretionary assets of $2.46 billion). Wealth management revenue includes feesconsumer loans sold resulting from the ~~sale~~Merger. We sold $457.9 million and $1.0 billion of ~~investment products offered through~~consumer real estate loans during the ~~Chemical Financial Advisors program. Fees~~three and nine months ended September 30, 2019, respectively, compared with $391.8 million and $908.2 million during the same periods in 2018.

Servicing fee revenue Servicing fee revenue was $5.1 million and $14.8 million for the three and nine months ended September 30, 2019, respectively, compared with $6.0 million and $21.8 million for the same periods in 2018. The decrease from ~~this program totaled $1.2 million in~~ the ~~third quarter of 2018, compared to $1.5 million in the second quarter of~~three months ended September 30, 2018 and ~~$1.2 million in the third quarter of 2017.~~

~~Electronic banking fees, which represent income earned~~ from ATM transactions, debit card activity and internet banking fees were $4.8 million in the third quarter of 2018, compared to $4.3 million in the second quarter of 2018 and $4.4 million in the third quarter of 2017. Electronic banking fees were $13.1 million in the nine months ended September 30, 2018 ~~compared~~was primarily due to ~~$18.7~~the continued run-off in the auto finance serviced for others portfolio, partially offset by the incremental revenue to the servicing portfolio resulting from the Merger.

Net gains (losses) on investment securities Net gains on investment securities were $5.9 million inand $7.4 million for the three and nine months ended September 30, ~~2017. Electronic banking fees decreased $5.6~~2019, respectively, compared with $0.1 million and $0.2 million for the same periods in 2018. The increase from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 ~~compared~~was primarily due to a gain of $5.9 million related to the sale of $1.6 billion of investment securities resulting from the balance sheet repositioning following the completion of the Merger.

Other Other noninterest income was a loss of $12.3 million and a loss of $0.3 million for the three and nine months ended September 30, ~~2017, primarily due to a reduction in interchange fees resulting from limitations set by the Durbin amendment, which became effective for us on July 1, 2017.~~

~~Net gain on sale~~2019, respectively, compared with income of ~~loans~~$6.2 million and ~~other mortgage banking revenue ("MBR") includes revenue from originating, selling and servicing residential mortgage loans~~income of $20.6 million for the ~~secondary market, other loan sales and~~same periods in 2018. The decrease from the ~~change in fair value in loan servicing rights. MBR was $9.8 million in the third quarter of 2018, compared to $8.8 million in the second quarter of~~three months ended September 30, 2018 and $5.2 million in the third quarter of 2017. MBR increased $1.0 million, or 11.2%, compared to the second quarter of 2018, and increased $4.6 million, compared to the third quarter of 2017. The increase in MBR in the third quarter of 2018, compared to both the second quarter of 2018 and the third quarter of 2017, was primarily due to the change in the impact to earnings from the change in fair value in loan servicing rights, which was a benefit of $0.9 million in the third quarter of 2018, compared to a detriment of $30 thousand in the second quarter of 2018 and a detriment of $4.0 million in the third quarter of 2017. MBR was $31.2 million in the nine months ended September 30, 2018 was primarily due to a $17.3 million loss related to the termination of interest rate swaps and the recognition of $4.5 million of loan servicing rights impairment, partially offset by an increase in incremental revenue resulting from the Merger.

Table of ~~$6.9~~Contents

Noninterest Expense The components of noninterest expense were as follows:



	Three Months Ended September 30,						Change
(Dollars in thousands)	2019			2018			$			% / bps
Compensation and employee benefits	$	155,745		$	124,996		$	30,749		24.6	%
Occupancy and equipment	49,229			42,337			6,892			16.3
Lease financing equipment depreciation	19,408			19,525			(117		)	(0.6	)
Net foreclosed real estate and repossessed assets	2,203			3,880			(1,677		)	(43.2	)
Merger-related expenses	111,259			—			111,259			N.M.
Other	87,776			55,685			32,091			57.6
Total noninterest expense	$	425,620		$	246,423		$	179,197		72.7
Full-time equivalent staff (at period end)	7,374			4,872			2,502			51.4
Efficiency ratio	91.32		%	67.41		%				2,391	bps
Adjusted efficiency ratio, Non-GAAP⁽¹⁾	58.74			64.91						(617	)

	Nine Months Ended September 30,						Change
(Dollars in thousands)	2019			2018			$			%
Compensation and employee benefits	$	395,953		$	372,174		$	23,779		6.4	%
Occupancy and equipment	132,789			123,562			9,227			7.5
Lease financing equipment depreciation	57,797			54,744			3,053			5.6
Net foreclosed real estate and repossessed assets	9,281			12,654			(3,373		)	(26.7	)
Merger-related expenses	124,943			—			124,943			N.M.
Other	194,781			201,308			(6,527		)	(3.2	)
Total noninterest expense	$	915,544		$	764,442		$	151,102		19.8
Efficiency ratio	77.08		%	70.40		%				668	bps
Adjusted efficiency ratio, Non-GAAP⁽¹⁾	61.57			65.08						(351	)

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 $155.7 million ~~compared to $24.3~~and $396.0 million infor the three and nine months ended September 30, ~~2017, primarily due to~~2019, respectively, compared with $125.0 million and $372.2 million for the ~~change~~same periods in ~~the impact to earnings~~2018. The increase from the ~~change in fair value in loan servicing rights, partially offset by a decline in net gain on sale of loans. At~~three months ended September 30, 2018 ~~we were servicing $6.91 billion of residential mortgage loans that were originated in our market areas~~ and ~~subsequently sold in the secondary market, compared to $7.11 billion at December 31, 2017 and $7.14 billion at September 30, 2017.~~

We sell residential mortgage loans in the secondary market on both a servicing retained and servicing released basis. These sales include us entering into residential mortgage loan sale agreements with buyers in the normal course of business. The agreements contain provisions that include various representations and warranties regarding the origination, characteristics and underwriting of the mortgage loans. The recourse of the buyer may result in either indemnification of any loss incurred by the buyer or a requirement for us to repurchase a loan that the buyer believes does not comply with the representations included in the loan sale agreement. Repurchase and loss indemnification demands received by us are reviewed by a senior officer on a loan-by-loan basis to validate the claim made by the buyer. We maintain a reserve for probable losses expected to be incurred from loans previously sold in the secondary market. This contingent liability is based on trends in repurchase and indemnification demands, actual loss experience, information requests, known and inherent risks in the sale of loans in the secondary market and current economic conditions. We record losses resulting from the repurchase of loans previously sold in the secondary market, as well as adjustments to estimates of future probable losses, as part of our MBR in the period incurred. Our reserve for probable losses was $4.3 million at September 30, 2018, compared to $5.3 million at December 31, 2017 and $5.4 million at September 30, 2017.

All other categories of noninterest income, including other fees for customer services, insurance commissions, gain on sale of investment securities, bank-owned life insurance, rental income and other noninterest income, totaled $9.1 million in both the third quarter of 2018 and the second quarter of 2018, compared to $7.2 million in the third quarter of 2017. All other categories of noninterest income totaled $27.4 million in the nine months ended September 30, 2018 ~~compared~~was primarily due to ~~$23.9~~the staff additions resulting from the Merger.

Occupancy and equipment Occupancy and equipment expense was $49.2 million inand $132.8 million for the three and nine months ended September 30, ~~2017. Other fees~~2019, respectively, compared with $42.3 million and $123.6 million for ~~customer services include revenue~~the same periods in 2018. The increase from ~~safe deposit boxes, credit card referral fees, wire transfer fees, letter of credit fees and other fees for services.~~

~~Operating Expenses~~

~~The following table presents the major categories of operating expenses:~~

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30,
2018 June 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
Operating expense
Salaries and wages⁽¹⁾
$ 49,182
$ 47,810
$ 44,641
$ 142,636
$ 138,126
Employee benefits⁽¹⁾
7,712
8,338
7,949
25,963
26,605
Occupancy 8,620
7,679
6,871
24,310
23,008
Equipment and software 8,185
8,276
7,582
24,120
24,248
Outside processing and service fees 12,660
10,673
9,626
33,689
26,061
FDIC insurance premiums⁽²⁾
4,823
4,473
2,768
14,925
6,634
Professional fees⁽²⁾
3,399
3,004
3,489
8,861
8,024
Intangible asset amortization⁽²⁾
1,426
1,425
1,526
4,290
4,564
Advertising and marketing⁽²⁾
1,580
2,933
980
5,888
5,103
Postage and express mail⁽²⁾
1,315
1,354
1,221
3,857
4,258
Training, travel and other employee expenses⁽²⁾
1,697
1,497
1,537
4,411
4,946
Telephone⁽²⁾
899
864
907
2,611
2,933
Supplies⁽²⁾
404
379
575
1,362
2,035
Donations⁽²⁾
815
777
515
1,878
1,723
Credit-related expenses⁽²⁾
1,239
1,467
1,874
4,012
4,969
Merger and restructuring expenses⁽³⁾
—
—
21,203
—
25,835
Impairment of income tax credit⁽²⁾⁽³⁾
3,162
1,716
3,095
6,512
3,095
Other⁽²⁾
2,543
1,896
3,180
6,507
9,805
Total operating expenses $ 109,661
$ 104,561
$ 119,539
$ 315,832
$ 321,972
Significant and other non-core items⁽³⁾
3,162
1,716
24,298
6,512
28,930
Operating expenses, core (non-GAAP)⁽³⁾⁽⁴⁾
$ 106,499
$ 102,845
$ 95,241
$ 309,320
$ 293,042

Full-time equivalent staff (at period end) 3,067
3,187
3,113
3,067
3,113
Average assets $ 20,501,223
$ 19,850,993
$ 18,858,148
$ 19,946,039
$ 18,204,024
Efficiency ratio - GAAP 55.6 % 53.5 % 68.0 % 54.0 % 61.5 %
Efficiency ratio - adjusted non-GAAP⁽⁴⁾
52.8 % 51.2 % 51.2 % 51.9 % 53.5 %
Total operating expenses as a percentage of total average assets (annualized) 2.1 % 2.1 %
2.5 %
2.1 %
2.4 %
Total operating expenses as a percentage of total average assets - adjusted non-GAAP⁽⁴⁾(annualized)
2.1 % 2.1 %
2.0 %
2.1 %
2.1 %


~~(1)~~	~~Included within the line item "Salaries, wages and employee benefits" in the Consolidated Statements of Income.~~


~~(2)~~	~~Included within the line item "Other" operating expenses in the Consolidated Statements of Income.~~


~~(3)~~	~~Significant items are defined as merger and restructuring expenses during~~ the three ~~and nine~~ months ended September 30, ~~2017. The non-core items include the impairment of income tax credits.~~


~~(4)~~	~~Please refer to the section entitled "Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.~~

~~Total operating expenses were $109.7 million in the third quarter of 2018, compared to $104.6 million in the second quarter of~~ 2018 and $119.5 million in the third quarter of 2017. Operating expenses included $3.2 million, $1.7 million and $3.1 million of impairment related to federal historic income tax credits in the third quarter of 2018, second quarter of 2018 and third quarter of 2017, respectively, and $21.2 million of merger and restructuring expenses in the third quarter of 2017, each noted as "significant" or "other non-core" items for the applicable periods. Operating expenses, core, a non-GAAP financial measure that excludes these significant and other non-core items for each applicable period, were $106.5 million in the third quarter of 2018, an increase of $3.7 million, or 3.6%, compared to core operating expenses of $102.8 million in the second quarter of 2018, and an increase of $11.3 million, or 11.8%, compared to core operating expenses of $95.2 million in the third quarter of 2017. The increase in core operating expense in the third quarter of 2018, compared to the second quarter of 2018, was primarily due to increases in outside processing and service fees of $2.0 million, salaries and wages of $1.4 million and occupancy expense of $0.9

million, partially offset by a reduction in advertising and marketing expense of $1.3 million. The increase in core operating expense in the third quarter of 2018, compared to the third quarter of 2017, was primarily due to increases in ~~salaries and wages of $4.5 million,~~ ~~outside processing and service fees of $3.0 million, FDIC insurance premiums of $2.0 million and occupancy expense~~ ~~of $1.7 million.~~

~~Total operating expenses were $315.8 million in~~from the nine months ended September 30, 2018 ~~compared~~was primarily due to ~~$322.0~~the incremental operating costs associated with the Merger.

Lease financing equipment depreciation Lease financing equipment depreciation was $19.4 million inand $57.8 million for the three and nine months ended September 30, ~~2017. Operating expenses included $6.5~~2019, respectively, compared with $19.5 million and ~~$4.5~~$54.7 million for the same periods in 2018. Shifts in lease financing equipment depreciation are the result of ~~impairment~~changes in balances of leased equipment.

Net foreclosed real estate and repossessed assets Net foreclosed real estate and repossessed assets expense was $2.2 million and $9.3 million for the three and nine months ended September 30, 2019, respectively, compared with $3.9 million and $12.7 million for the same periods in 2018.

Merger-related expenses Merger-related expenses related to ~~federal historic income tax credits~~the Merger were $111.3 million and $124.9 million for the three and nine months ended September 30, 2019, respectively, and consisted primarily of professional fees and employment related expenses.

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Other noninterest expense Other noninterest expense was $87.8 million and $194.8 million for the three and nine months ended September 30, 2019, respectively, compared with $55.7 million and $201.3 million for the same periods in 2018. The increase from the three months ended September 30, 2018 was primarily due to a $5.9 million expense related to the write-down of company-owned vacant land parcels and incremental costs associated with the Merger. The decrease from the nine months ended September 30, 2018 was primarily due to the $32.0 million settlement with the CFPB and ~~2017, respectively~~OCC, partially offset by the $5.9 million expense related to the write-down of company-owned vacant land parcels and ~~$25.8~~incremental costs due to the Merger.

Income Tax (Benefit) Expense Income tax benefit was $11.7 million and expense was $28.9 million, or 13.0% of ~~merger~~income before income tax expense, for the three and ~~restructuring expenses in the~~ nine months ended September 30, ~~2017 noted as "significant"~~2019, respectively, compared with expense of $28.0 million, or ~~"other non-core" items~~24.0% of income before income tax expense, and expense of $66.1 million, or 22.5% of income before income tax expense, for the ~~applicable periods. Operating expenses, core, a non-GAAP financial measure, which excludes these significant~~same periods in 2018. The three and ~~non-core items, was $309.3 million in the~~ nine months ended September 30, ~~2018,~~2019 included an ~~increase of $16.3~~$8.0 million ~~or 5.6%, compared to core operating expense of $293.0 million~~tax basis adjustment benefit in ~~the nine months ended September 30, 2017, primarily due to~~ ~~increases in FDIC insurance expense of$8.3 million, outside processing and service fees of $7.6 million and salaries and wages of $4.5 million.~~

Salaries and wages were $49.2 million in the third quarter of 2018, compared to $47.8 million in the second quarter of 2018 and $44.6 million in the third quarter of 2017. Salaries and wages increased $1.4 million, or 2.9%, in the third quarter of 2018, compared to the second quarter of 2018 and increased $4.6 million, or 10.2%, in the third quarter of 2018, compared to the third quarter of 2017. The increase in the third quarter of 2018, compared to both the second quarter of 2018 and the third quarter of 2017 was largely due to an increase in bonus and incentive compensation mostly resulting from our recent hires and additional expense related to the implementation of upgrades to our core operating systems. Salaries and wages were $142.6 million in the nine months ended September 30, 2018, an increase of $4.5 million, compared to $138.1 million during the nine months ended September 30, 2017. Salary and wage expense related to the implementation of upgrades to our core operating systems was $0.7 million in the third quarter of 2018, $0.5 million in the second quarter of 2018 and $1.2 million in the nine months ended September 30, 2018.

Employee benefits expense was $7.7 million in the third quarter of 2018, compared to $8.3 million in the second quarter of 2018 and $7.9 million in the third quarter of 2017. Employee benefits expense decreased $0.6 million, or 7.5%, in the third quarter of 2018, compared to the second quarter of 2018, primarily dueaddition to a ~~decrease~~$5.7 million benefit provided by the repricing of TCF's net deferred tax position in ~~payroll taxes and 401(k) contribution expense due to certain employees meeting withholding thresholds. Employee benefits expense decreased $0.2 million, or 3.0%, in~~connection with the third quarter of 2018, compared to the third quarter of 2017, due primarily to a decrease in 401(k) contribution expense as a result of certain employees meeting thresholds. Employee benefits expense was $26.0 million in the nine months ended September 30, 2018, compared to $26.6 million in the nine months ended September 30, 2017.

Compensation expenses, which include salaries and wages and employee benefits, as a percentage of total operating expenses were 51.9% in the third quarter of 2018, 53.7% in the second quarter of 2018, and 44.0% in the third quarter of 2017. Compensation expenses as a percentage of total operating expenses were 53.4% in the nine months ended September 30, 2018, compared to 51.2% in the nine months ended September 30, 2017.

Occupancy expense was $8.6 million in the third quarter of 2018, compared to $7.7 million in the second quarter of 2018 and $6.9 million in the third quarter of 2017. Occupancy expense increased $0.9 million, or 12.3%, in the third quarter of 2018, compared to the second quarter of 2018, and increased $1.7 million, or 25.5%, in the third quarter of 2018, compared to the third quarter of 2017, primarily due to $0.9 million of early lease termination expense resulting from the consolidation of office space housing our wealth management unit. Occupancy expense included depreciation expense on buildings of $1.7 million in eachcompletion of the third quarter of 2018, second quarter of 2018 and in the third quarter of 2017. Occupancy expense was $24.3 million in the nine months ended September 30, 2018, compared to $23.0 million in the nine months ended September 30, 2017.

Equipment and software expense was $8.2 million in the third quarter of 2018, compared to $8.3 million in the second quarter of 2018 and $7.6 million in the third quarter of 2017. Equipment and software expense decreased $0.1 million, or 1.1%, in the third quarter of 2018, compared to the second quarter of 2018, and increased $0.6 million, or 8.0%, compared to the third quarter of 2017. The increase in the third quarter of 2018, compared to the third quarter of 2017 was primarily due to an increase in software maintenance expense. Equipment and software expense was $24.1 million in the nine months ended September 30, 2018, compared to $24.2 million in the nine months ended September 30, 2017.

Outside processing and service fees are largely comprised of amounts paid to third-party vendors related to the outsourcing of certain day-to-day functions that are integral to our ability to provide services to our customers, including such things as our debit card, electronic banking and wealth management platforms. Outside processing and service fees were $12.7 million in the third quarter of 2018, compared to $10.7 million in the second quarter of 2018 and $9.6 million in the third quarter of 2017. Outside processing and service fees increased $2.0 million, or 18.6%, in the third quarter of 2018, compared to the second quarter of 2018, and increased $3.1 million, or 31.5%, compared to the third quarter of 2017. The increase in outside processing and service fees

in the third quarter of 2018, compared to both the second quarter of 2018 and the third quarter of 2017, was primarily due to increased ongoing operating costs associated with our enhanced technology platform implemented in the third quarter of 2018. Expenses specifically attributed to our core operating system conversion included within outside processing and service fees were $1.5 million in the third quarter of 2018 and $1.0 million in the second quarter of 2018. Outside processing and service fees were $33.7 million in the nine months ended September 30, 2018, compared to $26.1 million in the nine months ended September 30, 2017, which increased primarily due to core operating system conversion expenses and operating costs associated with the enhancement in our overall technology platform.

FDIC insurance premiums were $4.8 million in the third quarter of 2018, compared to $4.5 million in the second quarter of 2018 and $2.8 million in the third quarter of 2017. FDIC insurance premiums increased $0.3 million, or 7.8%, in the third quarter of 2018, compared to the second quarter of 2018, and increased $2.0 million compared to the third quarter of 2017. FDIC insurance premiums were $14.9 million in the nine months ended September 30, 2018, compared to $6.6 million in the nine months ended September 30, 2017. Changes in our FDIC insurance premiums are primarily due to changes in our assessment base, which consists of average consolidated total assets less average Tier 1 capital.

Professional fees were $3.4 million in the third quarter of 2018, compared to $3.0 million in the second quarter of 2018 and $3.5 million in the third quarter of 2017. Professional fees increased $0.4 million, or 13.1%, in the third quarter of 2018, compared to the second quarter of 2018, and decreased $0.1 million compared to the third quarter of 2017. Professional fees were $8.9 million in the nine months ended September 30, 2018, compared to $8.0 million in the nine months ended September 30, 2017, which increased primarily due to core operating system conversion expenses. Core operating system conversion expenses included in professional fees were $0.5 million in the third quarter of 2018, $94 thousand in the second quarter of 2018 and $0.7 million in the nine months ended September 30, 2018.

Advertising and marketing expenses were $1.6 million in the third quarter of 2018, compared to $2.9 million in the second quarter of 2018 and $1.0 million in the third quarter of 2017. Advertising and marketing expense decreased $1.3 million, in the third quarter of 2018, compared to the second quarter of 2018, and increased $0.6 million compared to the third quarter of 2017. The shifts in advertising and marketing expenses in the third quarter of 2018, compared to both the second quarter of 2018 and third quarter of 2017, were primarily attributable to communication and marketing expenses related to the conversion of our core operating systems. Advertising and marketing expenses were $5.9 million in the nine months ended September 30, 2018, compared to $5.1 million in the nine months ended September 30, 2017, which increased primarily due to the communication and marketing expenses related to the conversion of our core operating systems.

Credit-related expenses are comprised of other real estate ("ORE") net costs and loan collection costs. ORE net costs are comprised of costs to carry ORE, such as property taxes, insurance and maintenance costs, fair value write-downs after a property is transferred to ORE and net gains/losses from the disposition of ORE. Loan collection costs include legal fees, appraisal fees and other costs recognized in the collection of loans with deteriorated credit quality and in the process of foreclosure. Credit-related expenses were $1.2 million in the third quarter of 2018, compared to $1.5 million in the second quarter of 2018 and $1.9 million in the third quarter of 2017. We recognized net gains from the sales of ORE properties of $0.2 million in the third quarter of 2018, $23 thousand in the second quarter of 2018 and $0.4 million in the third quarter of 2017. Credit-related expenses were $4.0 million in the nine months ended September 30, 2018, compared to $5.0 million in the nine months ended September 30, 2017, which decreased primarily due to a reduction in our ORE assets.

All other categories of operating expenses not discussed above totaled $12.3 million in the third quarter of 2018, compared to $9.9 million in the second quarter of 2018, and $33.8 million in the third quarter of 2017. All other categories of operating expenses increased $2.4 million, or 23.7%, in the third quarter of 2018, compared to the second quarter of 2018, primarily due to an increase in impairment of income tax credits. All other categories of operating expenses in the third quarter of 2018 decreased $21.5 million, compared to the third quarter of 2017, primarily due to the merger and restructuring expenses recognized in the third quarter of 2017. All other categories of operating expenses totaled $31.4 million in the nine months ended September 30, 2018, compared to $59.2 million in the nine months ended September 30, 2017, with the decrease primarily due to the merger and restructuring expenses recognized in the nine months ended September 30, 2017, partially offset by expenses related to the conversion of our core operating systems recognized in the nine months ended September 30, 2018. All other operating expense categories included costs related to the conversion of our core operating systems of $0.3 million in both the third quarter of 2018 and in the second quarter of 2018 and $0.7 million in the nine months ended September 30, 2018.

Our efficiency ratio, which measures total operating expenses divided by the sum of net interest income plus noninterest income, was 55.6% in the third quarter of 2018, compared to 53.5% in the second quarter of 2018 and 68.0% in the third quarter of 2017. Our adjusted efficiency ratio, a non-GAAP financial measure, that excludes merger and restructuring expenses, the change in fair value in loan servicing rights, amortization of intangibles, impairment of income tax credits, net interest income FTE adjustment, and gain from sale of investment securities, as applicable, was 52.8% in the third quarter of 2018, compared to 51.2%

in the second quarter of 2018, and 51.2% in the third quarter of 2017. Our efficiency ratio was 54.0% in the nine months ended September 30, 2018, compared to 61.5% in the nine months ended September 30, 2017. Our adjusted efficiency ratio, a non-GAAP financial measure, was 51.9% in the nine months ended September 30, 2018, compared to 53.5% in the nine months ended September 30, 2017.

Please refer to the section entitled "Non-GAAP Financial Measures" included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of core operating expenses and the adjusted efficiency ratio to the most directly comparable GAAP financial measures.

~~Income Tax Expense~~

~~We record our federal income tax expense using our estimate of the effective income tax rate expected for the full year and apply that rate on a year-to-date basis.~~Merger. The fluctuations in ~~our~~TCF's effective ~~federal~~ income tax rate reflect changes each period in the proportion of interest income exempt from federal taxation, nondeductible transaction costs and other nondeductible expenses relative to pretax income and tax credits.

~~A reconciliation~~

Reportable Segment Results In connection with the Merger, effective August 1, 2019, we renamed our Wholesale Banking segment to Commercial Banking to align with the way we are now managed. In addition, activity that was related to small business banking and private banking were moved from the Wholesale Banking (now named Commercial Banking) segment to the Consumer Banking segment. The revised presentation of ~~expected income tax expense~~previously reported segment data has been applied retroactively to all periods presented in these financial statements. Our reportable segments are Consumer Banking, Commercial Banking and Enterprise Services. Due to the timing of the Merger, TCF is in the process of completing its analysis of the allocation of the goodwill across business segments, therefore goodwill is presented as part of Enterprise Services at September 30, 2019. See Note 25. Reportable Segments of the ~~federal statutory income tax rate and the amounts recorded in our~~Notes to Consolidated Financial Statements ~~were as follows:~~for further information regarding net income (loss), revenues and assets for each of our reportable segments.

Three Months Ended Nine Months Ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
(Dollars in thousands) Amount Rate Amount Rate Amount Rate Amount Rate
Tax at statutory rate $ 17,159
21.0 % $ 17,749
35.0 % $ 52,013
21.0 % $ 64,968
35.0 %
Changes resulting from:
Tax-exempt interest income (1,646 ) (2.0 ) (3,033 ) (6.0 ) (4,760 ) (1.9 ) (6,622 ) (3.6 )
State taxes, net of federal benefit 103
0.1
(336 ) (0.7 ) 313
0.1
134
0.2
Change in valuation allowance (384 ) (0.5 ) 11
—
(456 ) (0.2 ) 60
—
Bank-owned life insurance adjustments (245 ) (0.3 ) (344 ) (0.7 ) (782 ) (0.3 ) (1,023 ) (0.6 )
Income tax credits, net (4,077 ) (5.0 ) (3,941 ) (7.7 ) (9,178 ) (3.7 ) (5,738 ) (3.1 )
Nondeductible transaction expenses —
—
328
0.6
—
—
328
0.2
Tax detriment (benefit) in excess of compensation costs on share-based payments⁽¹⁾
(98 ) (0.1 ) 511
1.0
(1,863 ) (0.8 ) (5,871 ) (3.2 )
Other, net 500
0.6
(692 ) (1.3 ) 1,414
0.6
(690 ) (0.4 )
Income tax expense $ 11,312
13.8 % $ 10,253
20.2 % $ 36,701
14.8 % $ 45,546
24.5 %
Consumer Banking

⁽¹⁾~~Represents excess tax benefits resulting~~

Consumer Banking is comprised of all of the consumer and small business-facing businesses and includes Retail Banking, Wealth Management, Residential Lending, Consumer Lending and Business Banking. Our consumer banking strategy is primarily to generate deposits and originate high credit quality loans for investment and sale. Deposits are generated from ~~the exercise or settlement~~consumers and small businesses to provide a source of ~~share-based payment transactions.~~low cost funds, with a focus on building and maintaining quality customer relationships.

~~Our effective federal~~Consumer Banking generated net income ~~tax rate was 13.8% in the third quarter~~available to common shareholders of ~~2018, compared to 15.3% in the second quarter of 2018,~~$27.0 million and ~~20.2% in the third quarter of 2017. Our tax rate~~$91.6 million for the ~~periods during 2018 benefited from the enactment of the Tax Cuts~~three and ~~Jobs Act which reduced the federal corporate tax rate to 21% effective January 1, 2018. In addition, we received income tax benefits related to federal historic tax credits of $3.2 million, $1.9~~nine months ended September 30, 2019, respectively, compared with $36.9 million and ~~$2.3~~$72.1 million for the same periods in 2018.

Consumer Banking net interest income was $191.9 million and $470.7 million for the ~~third quarter of 2018,~~three and nine months ended September 30, 2019, respectively, compared with $143.0 million and $429.1 million for the ~~second quarter of 2018 and the third quarter of 2017, respectively. We had no uncertain tax positions during~~same periods in 2018. The increase in net interest income from the three months ended September 30, 2018 and from the nine months ended September 30, ~~2017.~~2018 was primarily attributable to the impact of the loans acquired in the Merger, partially offset by the deposits acquired in the Merger.

Consumer Banking provision for credit losses was $4.5 million and $16.4 million for the three and nine months ended September 30, 2019, respectively, compared with a benefit of $953 thousand and a provision of $18.9 million for the same periods in 2018. The increase from the three months ended September 30, 2018 was primarily due to a decrease in recoveries on previous charge-offs related to consumer loans. The decrease from the nine months ended September 30, 2018 was primarily due to a decrease in the provision for credit losses attributable to run-off and maturation of the auto finance portfolio. The provision for credit losses is predominantly a function of our 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 of the Notes to Consolidated Financial Statements.

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Consumer Banking noninterest income was $57.1 million and $183.8 million for the three and nine months ended September 30, 2019, respectively, compared with $66.6 million and $196.8 million for the same periods in 2018. The decrease in noninterest income from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to a $19.3 million loss related to the transfer of the Legacy TCF auto finance portfolio to held-for-sale. Excluding the loss related to the auto finance portfolio transfer, the increase from both the three and nine months ended September 30, 2018 was primarily due to a higher volume of consumer loans sold resulting from the Merger. Servicing fee income attributable to the Consumer Banking segment was $32.4 million and $84.3 million for the three and nine months ended September 30, 2019, respectively, compared with $28.1 million and $80.6 million for the same periods in 2018. Average Consumer Banking loans serviced for others were $6.9 billion and$4.4 billionfor the three and nine months ended September 30, 2019, respectively, compared with $3.3 billion and $3.7 billion for the same periods in 2018.

Consumer Banking noninterest expense was $210.7 million and $520.0 million for the three and nine months ended September 30, 2019, respectively, compared with $162.0 million and $511.9 million for the same periods in 2018. The increase from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to the incremental operating cost due to the Merger.

Commercial Banking

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

Commercial Banking generated net income available to common shareholders of $68.8 million and $142.4 million for the three and nine months ended September 30, 2019, respectively, compared with $42.6 million and $134.8 million for the same periods in 2018.

Commercial Banking net interest income was $157.4 million and $350.8 million for the three and nine months ended September 30, 2019, respectively, compared with $94.3 million and $289.3 million for the same periods in 2018. The increase in net interest income from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to the impact of the loans acquired in the Merger, partially offset by the deposits acquired in the Merger.

Commercial Banking provision for credit losses was $22.7 million and $34.5 million for the three and nine months ended September 30, 2019, respectively, compared with $3.2 million and $9.0 million for the same periods in 2018. The increase from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to an increase in commercial and industrial net charge-offs in the three months ended September 30, 2019 primarily resulting from one loan relationship. The provision for credit losses is predominantly a function of our 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 of the Notes to Consolidated Financial Statements.

Commercial Banking noninterest income was $47.9 million and $132.9 million for the three and nine months ended September 30, 2019, respectively, compared with $44.9 million and $132.8 million for the same periods in 2018. The increase from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to incremental revenue resulting from the Merger, partially offset by a decrease in leasing and equipment finance noninterest income as a result of decreased operating lease revenue and sales-type lease revenue.

Commercial Banking noninterest expense was $102.8 million and $267.1 million for the three and nine months ended September 30, 2019, respectively, compared with $77.9 million and $229.1 million for the same periods in 2018. The increase from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to an increase in merger-related expenses and other expenses related to the incremental costs due to the Merger.

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Enterprise Services

Enterprise Services is comprised of (i) corporate treasury, which includes our 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. Our investment portfolio accounts for our earning assets within this segment. Borrowings may be used to offset reductions in deposits or to support lending activities. This segment also includes residual revenues and expenses representing the difference between actual amounts incurred by Enterprise Services and amounts allocated to the operating segments, including interest rate risk residuals such as funds transfer pricing mismatches.

Enterprise Services generated net loss available to common shareholders of $76.2 million and $58.4 million for the three and nine months ended September 30, 2019, respectively, compared with net income available to common shareholders of $4.1 million and a net loss available to common shareholders of $0.7 million for the same periods in 2018.

Enterprise Services net interest income was $22.4 million and $58.7 million for the three and nine months ended September 30, 2019, respectively, compared with $16.2 million and $36.9 million for the same periods in 2018. The increase in from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to the increase in average balances of investment securities acquired in the Merger.

Enterprise Services noninterest expense was $112.1 million and $128.4 million for the three and nine months ended September 30, 2019, respectively, compared with $6.5 million and $23.4 million for the same periods in 2018. The increase from the three months ended September 30, 2018 and from the nine months ended September 30, 2018 was primarily due to an increase in merger-related expenses and other expenses related to the incremental costs due to the Merger.

Preferred stock dividends were $2.5 million and $7.5 million for the three and nine months ended September 30, 2019, respectively, compared with $2.5 million and $9.1 million for preferred stock dividends and the impact of the preferred stock redemption for the same periods in 2018. The decrease was due to the redemption of the 6.45% Series B non-cumulative perpetual preferred stock in the first quarter of 2018.

Consolidated Financial Condition Analysis

Investment Securities Total investment securities available-for-sale, at fair value, were $5.6 billion at September 30, 2019, compared with $2.5 billion at December 31, 2018. Our investment securities available-for-sale are debt securities consisting primarily of fixed-rate mortgage-backed securities issued by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), and obligations of states and political subdivisions. Total investment securities held-to-maturity were $144.0 million at September 30, 2019, compared with $148.9 million at December 31, 2018. Our investment securities held-to-maturity portfolio consists primarily of fixed-rate mortgage-backed securities issued by the FNMA. The increase in investment securities was primarily due to the addition of $3.8 billion of investment securities as a result of the Merger, partially offset by the subsequent sale of $1.6 billion of investment securities during the three months ended September 30, 2019 as we repositioned our balance sheet. See Note 2. Merger for further information. We may, from time to time, sell investment securities available-for-sale and utilize the proceeds to reduce borrowings, fund growth in loans and leases or for other corporate purposes. We sold $1.6 billion and $2.0 billion of investment securities during the three and nine months ended September 30, 2019, respectively, which included select floating rate, corporate, non-agency and municipal securities. There were no sales of available-for-sale investment securities during the three and nine months ended September 30, 2018.

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The carrying value of investment securities available-for-sale and held-to-maturity were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Investment securities available-for-sale, at fair value
Debt securities:
Government and government-sponsored enterprises	$	247,147	$	—
Obligations of states and political subdivisions	789,671		556,871
Mortgage-backed securities	4,542,592		1,913,194
Corporate debt and trust preferred securities	425		—
Total debt securities available-for-sale	5,579,835		2,470,065
Total investment securities available-for-sale	5,579,835		2,470,065
Investment securities held-to-maturity
Mortgage-backed securities	140,324		146,052
Corporate debt and trust preferred securities	3,676		2,800
Total investment securities held-to-maturity	144,000		148,852
Total investment securities	$	5,723,835	$	2,618,917

The carrying value and FTE yield of investment securities available-for-sale and investment securities held-to-maturity by final contractual maturity were as follows. The final contractual maturities do not consider possible prepayments and therefore expected maturities may differ because borrowers may have the right to prepay.



	At September 30, 2019
	Government and Government-sponsored Enterprises				Obligations of States and Political Subdivisions				Mortgage-backed Securities				Corporate Debt And Trust Preferred Securities				Total
(Dollars in thousands)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Investment securities available-for-sale
Due in one year or less	$	—	—	%	$	60,652	2.23	%	$	—	—	%	$	—	—	%	$	60,652	2.23	%
Due in 1-5 years	—		—		169,736		2.61		29,663		1.93		—		—		199,399		2.51
Due in 5-10 years	27,186		3.60		161,469		2.76		304,100		2.60		—		—		492,755		2.71
Due after 10 years	219,961		3.44		397,814		2.89		4,208,829		2.95		425		6.87		4,827,029		2.97
Total	$	247,147	3.46		$	789,671	2.75		$	4,542,592	2.92		$	425	6.87		$	5,579,835	2.92
Investment securities held-to-maturity
Due in one year or less	$	—	—	%	$	—	—	%	$	—	—	%	$	—	—	%	$	—	—	%
Due in 1-5 years	—		—		—		—		—		—		3,150		2.82		3,150		2.82
Due in 5-10 years	—		—		—		—		60		6.50		400		3.00		460		3.46
Due after 10 years	—		—		—		—		140,264		2.47		126		6.00		140,390		2.47
Total	$	—	—		$	—	—		$	140,324	2.47		$	3,676	2.95		$	144,000	2.48

See Note 6. Investment Securities of Notes to Consolidated Financial Statements for further information regarding our investment securities available-for-sale and investment securities held-to-maturity.

Loans and Leases Held-for-Sale

Our ~~effective~~loans and leases held-for-sale were $1.4 billion at September 30, 2019, an increase of $1.3 billion, compared to $90.7 million at December 31, 2018. The increase was primarily due to the transfer of $1.2 billion of Legacy TCF auto finance portfolio to held-for-sale.

Loans and Leases

Our commercial loan and lease portfolio is comprised of commercial and industrial loans, commercial real estate loans, and lease financing. Our consumer loan portfolio is comprised of residential mortgages, consumer installment loans and home equity loans and lines of credit. Our lending markets generally consist of communities throughout our primary banking markets including Michigan, Minnesota, Illinois, Ohio, Indiana, Colorado, Wisconsin, Arizona and South Dakota.

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Total loans and leases were $33.5 billion at September 30, 2019, an increase of $14.4 billion, or 75.7%, compared to December 31, 2018. The increase was primarily due to $15.7 billion of loans and leases acquired in the Merger, partially offset by the transfer of the Legacy TCF auto finance portfolio to held-for-sale which had a balance of $1.2 billion at September 30, 2019.

Information about our loans and leases was as follows:



	At September 30, 2019				At December 31, 2018				Change
(Dollars in thousands)	Amount		% of Total		Amount		% of Total		$			%
Commercial loan and lease portfolio:
Commercial and industrial	$	10,810,534	32.3	%	$	6,220,632	32.6	%	$	4,589,902		73.8	%
Commercial real estate	8,876,779		26.5		2,908,313		15.2		5,968,466			205.2
Lease financing	2,594,373		7.7		2,530,163		13.3		64,210			2.5
Total commercial loan and lease portfolio	22,281,686		66.5		11,659,108		61.1		10,622,578			91.1
Consumer loan portfolio:
Residential mortgage	6,057,404		18.0		2,335,835		12.2		3,721,569			159.3
Consumer installment	1,562,252		4.7		2,003,572		10.5		(441,320		)	(22.0	)
Home equity	3,609,410		10.8		3,074,505		16.2		534,905			17.4
Total consumer loan portfolio	11,229,066		33.5		7,413,912		38.9		3,815,154			51.5
Total loans and leases	$	33,510,752	100.0	%	$	19,073,020	100.0	%	$	14,437,732		75.7	%

Commercial Loan and Lease Portfolio

Our commercial loan and lease portfolio was $22.3 billion at September 30, 2019, an increase of $10.6 billion, or 91.1%, compared to $11.7 billion at December 31, 2018, primarily due to the $9.8 billion of commercial loans and leases acquired as a result of the Merger. Our commercial loan and lease portfolio is well diversified across business lines and has no concentration in any one industry.

Commercial and industrial Commercial and industrial loans and lines of credit include loans to varying types of businesses, including equipment dealers, municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital and operational needs and term financing of equipment. Commercial and industrial loans are secured by various types of business assets including inventory, floorplan equipment, receivables, equipment or financial instruments. Origination levels related to equipment dealers are impacted by the velocity of fundings and repayments with dealers.

Commercial real estate Commercial real estate loans include loans that are secured by real estate occupied by the borrower for ongoing operations, non-owner occupied real estate leased to one or more tenants and construction and development loans primarily originated for construction of commercial properties. Construction and development loans often convert to a commercial real estate loan at the completion of the construction period. Commercial real estate loans are primarily secured by commercial real estate, including multi-family housing, office buildings, health care facilities, warehouse and industrial buildings, hotel and motel buildings, self-storage buildings and retail services buildings.

Lease financing We provide a broad range of comprehensive lease products addressing the diverse financing needs of small to large companies in a growing number of select market segments including specialty vehicles, construction equipment, golf cart and turf equipment, manufacturing equipment, medical equipment, trucks and trailers, furniture and fixtures, technology and data processing equipment and agriculture equipment. The uninstalled backlog of approved transactions was $626.3 million at September 30, 2019, compared with $572.4 million at December 31, 2018.

Consumer Loan Portfolio

Our consumer loan portfolio was $11.2 billion at September 30, 2019, an increase of $3.8 billion, or 51.5%, compared to $7.4 billion at December 31, 2018, primarily due to $5.9 billion of consumer loans acquired as a result of the Merger, partially offset by the $1.2 billion of Legacy TCF auto loan portfolio transferred to held-for-sale.

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Residential mortgage Residential mortgage loans consist primarily of one- to four-family residential loans with fixed and adjustable interest rates, with amortization periods generally from 15 to 30 years. The loan-to-value ratio at the time of origination is generally 90% or less. Loans with more than an 80% loan-to-value ratio generally require private mortgage insurance. Residential mortgage loans also include loans to consumers for the construction of single family residences that are secured by these properties.

Consumer installment Consumer installment loans consist of relatively small loan amounts to consumers to finance personal items (primarily automobiles, recreational vehicles and marine vehicles) and are comprised primarily of indirect loans purchased from dealerships. Consumer rates are both fixed and variable, with negotiable terms. Our consumer installment loans typically amortize over periods up to 60 months. Consumer loans not secured by real estate are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value, and is more difficult to control, than real estate.

Home equity Home equity loans and lines of credit are comprised of loans to consumers who utilize equity in their personal residence, including junior lien mortgages, as collateral to secure the loan or line-of-credit. The majority of our home equity lines of credit are comprised of loans with a 10-year interest-only draw period and a 20-year amortization repayment period. These home equity lines of credit can include junior lien mortgages whereby the first lien mortgage is held by a nonaffiliated financial institution.

Credit Quality The following summarizes our loan and lease portfolio based on the credit quality factors that we believe are important and should be considered to understand the overall condition of our loan portfolios. See Note 8. Allowance for Loan and Lease Losses and Credit Quality of Notes to Consolidated Financial Statements for further information.

Past Due Loans and Leases Over 90-day delinquent loans and leases by type, excluding nonaccrual loans and leases, were as follows. Delinquent balances are determined based on the contractual terms of the loan or lease.



	At September 30, 2019				At December 31, 2018
(Dollars in thousands)	90 Days or More Delinquent and Accruing⁽¹⁾		Percentage of Period-end Loans and Leases		90 Days or More Delinquent and Accruing⁽¹⁾		Percentage of Period-end Loans and Leases
Commercial loan and lease portfolio:
Commercial and industrial	$	2,241	0.02	%	$	760	0.01	%
Commercial real estate	8,054		0.09		—		—
Lease financing	2,421		0.09		1,882		0.07
Total commercial loan and lease portfolio	12,716		0.06		2,642		0.02
Consumer loan portfolio:
Residential mortgage	886		0.01		1,275		0.06
Consumer installment	6		—		3,349		0.17
Total consumer loan portfolio	892		0.01		4,624		0.06
Portfolios acquired with deteriorated credit quality	16,052		5.47		178		4.65
Total	$	29,660	0.09	%	$	7,444	0.04	%


(1)	Excludes nonaccrual loans and leases

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



	At September 30, 2019							At December 31, 2018
(Dollars in thousands)	Accruing TDR Loans			Nonaccrual TDR Loans		Total TDR Loans		Accruing TDR Loans			Nonaccrual TDR Loans		Total TDR Loans
Commercial loan and lease portfolio	$	10,068		$	1,953	$	12,021	$	12,665		$	6,153	$	18,818
Consumer loan portfolio	75,836			19,284		95,120		85,794			22,554		108,348
Total	$	85,904		$	21,237	$	107,141	$	98,459		$	28,707	$	127,166
Over 90-day delinquency as a percentage of total accruing TDR loans	34.53		%	N.A.		N.A.		7.56		%	N.A.		N.A.

N.A. Not Applicable

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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 with an interest rate consistent with market rates on loans with comparable risk at the time of restructuring and performing based on the restructured terms are no longer disclosed as TDR loans in the calendar years after modification; however, these loans are still considered impaired and follow our impaired loan reserve policies.

TDRs typically involve a deferral of the principal balance of the loan, a reduction of the stated interest rate of the loan or, in certain limited circumstances, a reduction of the principal balance of the loan or the loan's accrued interest.

Nonperforming Assets Nonperforming assets, consisting of nonaccrual loans and leases and other real estate owned, were as follows:



(Dollars in thousands)	At September 30, 2019			At December 31, 2018
Commercial loan and lease portfolio:
Commercial and industrial	$	55,039		$	26,061
Commercial real estate	26,518			4,518
Lease financing	11,503			7,993
Total commercial loan and lease portfolio	93,060			38,572
Consumer loan portfolio:
Residential mortgage	48,816			33,111
Consumer installment	636			8,581
Home equity	39,296			25,654
Total consumer loan portfolio	88,748			67,346
Nonaccrual loans and leases	181,808			105,918
Other real estate owned	27,638			17,403
Total nonperforming assets	$	209,446		$	123,321
Nonaccrual loans and leases as a percentage of total loans and leases	0.54		%	0.56		%
Nonperforming 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 nonaccrual loans and leases	66.67			148.65

Nonperforming assets were $209.4 million at September 30, 2019, compared with $123.3 million at December 31, 2018. The increase was primarily due to loans acquired in the Merger.

Loans and leases are generally placed on nonaccrual 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 home equity loans with a junior lien position are also placed on nonaccrual 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 nonaccrual 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 nonaccrual status are generally reported as nonaccrual 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 nonaccrual status until a well-documented credit analysis indicates full repayment of the remaining pre-discharged contractual principal and interest is likely. We do not classify PCI loans as nonaccrual loans because the loans are recorded at net realizable value based on the principal and interest expected to be collected on the loan.

The majority of our nonaccrual 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.

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Changes in the amount of nonaccrual loans and leases were as follows:



	At or For the Three Months Ended September 30, 2019
(In thousands)	Consumer Loan Portfolio			Commercial Loan and Lease Portfolio			Total
Balance, beginning of period	$	76,079		$	31,914		$	107,993
Acquired	16,414			64,830			81,244
Additions	24,592			54,059			78,651
Charge-offs	(2,020		)	(18,257		)	(20,277		)
Transfers to other assets	(5,227		)	(4,294		)	(9,521		)
Transfers (to) from loans and leases held for sale	(9,454		)	—			(9,454		)
Return to accrual status	(3,048		)	(10,419		)	(13,467		)
Payments received	(8,597		)	(25,274		)	(33,871		)
Other, net	9			501			510
Balance, end of period	$	88,748		$	93,060		$	181,808

	At or For the Nine Months Ended September 30, 2019
(In thousands)	Consumer Loan Portfolio			Commercial Loan and Lease Portfolio			Total
Balance, beginning of period	$	67,346		$	38,572		$	105,918
Acquired	16,414			64,830			81,244
Additions	60,875			94,190			155,065
Charge-offs	(6,407		)	(29,693		)	(36,100		)
Transfers to other assets	(14,530		)	(12,174		)	(26,704		)
Transfers (to) from loans and leases held-for-sale	(9,454		)	—			(9,454		)
Return to accrual status	(6,443		)	(17,636		)	(24,079		)
Payments received	(18,676		)	(48,000		)	(66,676		)
Other, net	(377		)	2,971			2,594
Balance, end of period	$	88,748		$	93,060		$	181,808

Loan and Lease Credit Classifications We assess the risks in our loan and lease portfolio utilizing numerous risk characteristics as outlined in the previous sections. 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 September 30, 2019
	Non-classified				Classified				Total
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial loan and lease portfolio:
Commercial and industrial	$	10,307,229	$	309,440	$	193,865	$	—	$	10,810,534
Commercial real estate	8,645,910		150,132		80,737		—		8,876,779
Lease financing	2,540,637		27,007		26,729		—		2,594,373
Total commercial loan and lease portfolio	21,493,776		486,579		301,331		—		22,281,686
Consumer loan portfolio:
Residential mortgage	6,001,380		1,543		54,481		—		6,057,404
Consumer installment	1,561,506		—		746		—		1,562,252
Home equity	3,565,763		1,284		42,363		—		3,609,410
Total consumer loan portfolio	11,128,649		2,827		97,590		—		11,229,066
Total loans and leases	$	32,622,425	$	489,406	$	398,921	$	—	$	33,510,752

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	At December 31, 2018
	Non-classified				Classified				Total
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial loan and lease portfolio:
Commercial and industrial	$	5,955,713	$	158,296	$	106,623	$	—	6,220,632
Commercial real estate	2,869,711		12,864		25,738		—		2,908,313
Lease financing	2,480,964		25,195		24,004		—		2,530,163
Total commercial loan and lease portfolio	11,306,388		196,355		156,365		—		11,659,108
Consumer loan portfolio:
Residential mortgage	2,294,740		3,606		37,489		—		2,335,835
Consumer installment	1,981,844		1,302		20,426		—		2,003,572
Home equity	3,043,296		3,747		27,462		—		3,074,505
Total consumer loan portfolio	7,319,880		8,655		85,377		—		7,413,912
Total loans and leases	$	18,626,268	$	205,010	$	241,742	$	—	$	19,073,020

Total classified loans and leases in the commercial loan and lease portfolio were $398.9 million at September 30, 2019, compared with $241.7 million at December 31, 2018. The increase was primarily due to loans acquired in the Merger.

Allowance for Loan and Lease Losses The determination of the allowance for loan and lease losses is a critical accounting estimate. Our evaluation of incurred losses is based on historical loss rates multiplied by the respective portfolio's loss emergence period. Factors we use 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. We review the various factors used in our methodologies on a periodic basis.

The allowance for loan and leases losses on loans and leases acquired in the Merger was not carried over on the Merger Date. Instead, the acquired loans and leases were recorded at their estimated fair including a component for expected credit losses.

We consider our allowance for loan and lease losses of $121.2 million appropriate to cover losses incurred in the loan and lease portfolios at September 30, 2019. However, no assurance can be given that we 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 our 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 our 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 our 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 our allowance for loan and lease losses was as follows:



	At September 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
Commercial loan and lease portfolio:
Commercial and industrial	$	39,974	0.37	%	$	41,103	0.66	%
Commercial real estate	24,090		0.27		22,877		0.79
Lease financing	14,367		0.55		13,449		0.53
Total commercial loan and lease portfolio	78,431		0.35		77,429		0.66
Consumer loan portfolio:
Residential mortgage	19,816		0.33		21,436		0.92
Consumer installment	1,859		0.12		35,151		1.75
Home equity	21,112		0.58		23,430		0.76
Total consumer loan portfolio	42,787		0.38		80,017		1.08
Total allowance for loan and lease losses	121,218		0.36		157,446		0.83
Credit discount on acquired loans	177,402
Total allowance and discount on acquired loans	298,620		0.89
Other credit loss reserves:
Reserves for unfunded commitments	3,461		N.A.		1,429		N.A.
Total credit loss reserves	$	302,081	0.90	%	$	158,875	0.83	%

N.A. Not Applicable

Net loan and lease charge-offs for the three and nine months ended September 30, 2019 were $28.6 million, or 0.39% of average loans and leases (annualized), and $61.3 million, or 0.36% of average loans and leases (annualized), respectively, compared with $6.8 million, or 0.15%, and $33.7 million, or 0.24%, for the same periods ended September 30, 2018. The increases from both the three and nine months ended September 30, 2018 was primarily due to an increase in commercial and industrial net charge-offs in the three months ended September 30, 2019 primarily due to one loan relationship.

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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 $442.6 million of net liquidity qualifying interest-bearing deposits at the Federal Reserve Bank at September 30, 2019, compared with $208.4 million at December 31, 2018. Certain investment securities held-to-maturity and investment securities carried at fair value provide the ability to liquidate or pledge unencumbered securities as needed. At September 30, 2019, securities with a carrying value of $5.7 billion were held, of which $761.4 million was pledged as collateral to secure certain deposits and borrowings.

TCF Financial had net liquidity qualifying cash of $164.4 million at September 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 $3.6 billion of additional borrowing capacity at the FHLB of Des Moines at September 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.

On August 5, 2019, TCF Financial entered into a $50.0 million unsecured revolving credit facility with an unaffiliated bank. The revolving credit facility contains several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on levels of indebtedness. At September 30, 2019, TCF had no outstanding balance under the revolving credit facility and was in compliance with all such covenants. The revolving credit facility is available to be used, as needed, to fund growth, common stock repurchases or other general corporate purposes. TCF was in compliance with all the covenants at September 30, 2019.

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

Deposits Deposits were $35.3 billion at September 30, 2019, compared with $18.9 billion at December 31, 2018. The increase in deposits was primarily due to the $16.4 billion deposits acquired in the Merger.

Noninterest bearing checking accounts represented 22.56% of total deposits at September 30, 2019, compared with 20.75% of total deposits at December 31, 2018. TCF's weighted-average interest rate for deposits, including noninterest bearing deposits, was 0.88% the nine months ended September 30, 2019, respectively, compared with 0.54% for the same periods in 2018.

Certificates of deposit were $8.4 billion at September 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 September 30, 2019 were as follows:



(In thousands)
Three months or less	$	1,683,346
Over three through six months	1,574,030
Over six through 12 months	1,445,375
Over 12 months	392,054
Total	$	5,094,805

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Borrowings Borrowings were $3.5 billion at September 30, 2019, compared with $1.4 billion at December 31, 2018. The increase in borrowings was primarily due to $3.1 billion of borrowings assumed in the Merger, partially offset by subsequent repayments of long-term FHLB advances. In addition, on July 2, 2019, TCF Bank issued $150.0 million of 4.125% fixed-to-floating rate subordinated notes. The subordinated notes quality as Tier 2 capital of TCF Financial Corporation and TCF Bank under the capital adequacy rules established by the Federal Reserve Board and the OCC, respectively, subject to applicable limitations. The proceeds are to be used for general corporate purposes which may include capital to support asset growth and reducing long-term borrowings. On August 5, 2019, TCF Financial entered into a $50.0 million revolving credit facility that was available to be used, as needed, to fund growth, common stock repurchases or other general corporate purposes. Through September 30, 2019, TCF Financial had not drawn on the revolving credit facility.

Information regarding short-term borrowings was as follows:



	At or For the Three Months Ended September 30,						At or For the Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
FHLB advances
Maximum outstanding at any month-end	$	2,440,000		$	—		$	2,440,000		$	—
Balance outstanding at end of period	2,335,960			—			2,335,960			—
Weighted average interest rate at end of period	1.63		%	—		%	1.63		%	—		%
Average balance outstanding	$	1,698,763		$	—		$	773,576		$	—
Weighted average interest rate	1.62		%	—		%	2.07		%	—		%
Federal funds purchased
Maximum outstanding at any month-end	$	—		$	—		$	—		$	—
Balance outstanding at end of period	—			—			—			—
Weighted average interest rate at end of period	—		%	—		%	—		%	—		%
Average balance outstanding	$	283		$	283		$	209		$	209
Weighted average interest rate	2.37		%	2.19		%	2.53		%	1.90		%
Collateralized Deposits
Maximum outstanding at any month-end	$	271,249		$	—		$	271,249		$	—
Balance outstanding at end of period	271,340			—			271,340			—
Weighted average interest rate at end of period	1.00		%	—		%	1.00		%	—		%
Average balance outstanding	$	184,290		$	1,669		$	63,771		$	2,077
Weighted average interest rate	1.01		%	2.24		%	0.55		%	2.07		%
Line-of-credit: TCF Commercial Finance Canada, Inc.
Maximum outstanding at any month-end	$	1,516		$	2,324		$	10,455		$	8,565
Balance outstanding at end of period	—			2,324			—			—
Weighted average interest rate at end of period	—		%	2.75		%	—		%	—		%
Average balance outstanding	$	892		$	1,405		$	1,194		$	1,187
Weighted average interest rate	2.94		%	2.74		%	2.99		%	2.59		%

Long-term borrowings were as follows:



(In thousands)	September 30, 2019		December 31, 2018
FHLB advances	$	322,674	$	1,100,000
Subordinated debt	430,178		253,391
Discounted lease rentals	104,571		92,976
Capital lease obligation	3,059		3,105
Total long-term borrowings	$	860,482	$	1,449,472

See Note 15 Borrowings of Notes to Consolidated Financial Statements for further information regarding TCF's long-term borrowings.

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Contractual Obligations and Commitments As discussed in the Notes to Consolidated Financial Statements, TCF has certain obligations and commitments to make future payments under contracts.

At September 30, 2019, the aggregate contractual obligations and commitments were as follows:



	Payments Due by Period
(In thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Contractual Obligations:
Certificates of deposit	$	8,385,972	$	4,813,249	$	3,404,739	$	137,962	$	30,022
Long-term borrowings	860,482		11,138		179,782		132,681		536,881
Lease obligations	399,825		9,517		59,709		53,990		276,609
Other contractual obligations ⁽¹⁾	129,916		12,256		115,786		1,026		848
Marketing related contracts	246,100		46,793		79,497		63,450		56,360
Construction contracts and land purchase commitments for future branch sites	13,313		13,313		—		—		—
Liabilities related to acquisition and portfolio purchase ⁽²⁾	8,288		—		4,089		1,024		3,175
Total	$	10,043,896	$	4,906,266	$	3,843,602	$	390,133	$	903,895


(1)	Includes commitments to fund qualified low income housing and other tax investment projects, private equity capital investments and other similar types of investments.


(2)	Relates to TCF's acquisition of EFLC and a leasing and equipment finance loan and lease portfolio purchase in 2017.



	Amount of Commitment - Expiration by Period
(In thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Commitments:
Commitments to extend credit:
Consumer	$	2,266,913	$	116,212	$	133,673	$	181,397	$	1,835,631
Commercial	5,269,843		2,616,356		1,442,146		894,466		316,875
Total commitments to extend credit	7,536,756		2,732,568		1,575,819		1,075,863		2,152,506
Standby letters of credit and guarantees on industrial revenue bonds	125,438		70,662		26,574		19,356		8,846
Total	$	7,662,194	$	2,803,230	$	1,602,393	$	1,095,219	$	2,161,352

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

Capital Management TCF is committed to managing capital to maintain protection for shareholders, 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 shareholders, 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.

On October 24, 2019, our board of directors approved an authorization to repurchase up to $150 million of our common stock. The repurchase program has no expiration, and permits shares to be repurchased in compliance with Rule 10b-18 of the Exchange Act, through one or more broker-dealers as part of “block purchases” made by TCF, and/or through privately negotiated purchases, accelerated stock repurchase agreements, or Rule 10b5-1 plans at the discretion of the Corporation. Through November 11, 2019, we repurchased 190,977 shares of of our common stock totaling $8.0 million.

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At September 30, 2019 and December 31, 2018, TCF Bank's capital ratios exceeded the quantitative capital ratios required for an institution to be considered "well-capitalized." Significant factors that may affect capital adequacy include, but are not limited to, a disproportionate growth in assets versus capital and a change in mix or credit quality of assets. There are no conditions or events since September 30, 2019 that management believes have changed TCF Bank's status as well-capitalized.

Equity Total equity was ~~14.8%~~$5.7 billion, or 12.5% of total assets, at September 30, 2019, compared with $2.6 billion, or 10.8% of total assets, at December 31, 2018. The increase in equity during the nine months ended September 30, 2019 was primarily attributable to the 81.9 million shares of common stock issued in the Merger. See Note 2 Merger of Notes to Consolidated Financial Statements for further information.

Treasury Stock and Other Treasury stock and other was $27.4 million at September 30, 2019, compared with $252.2 million at December 31, 2018. The $27.4 million at September 30, 2019 was comprised of shares held in trust for deferred compensation plans. The decrease was primarily due to the elimination of all previously outstanding Legacy TCF treasury stock in connection with the close of the Merger.

Common Stock Dividends Dividends to common shareholders on a per share basis were 35 cents for the three months ended September 30, 2019, and as adjusted to reflect the Merger Exchange Ratio, 94 cents for the nine months ended September 30, 2019. Dividends to common shareholders on a per share basis, adjusted to reflect the Merger Exchange Ratio, were 29.5 cents for the three months ended September 30, 2018 ~~compared to 24.5%~~and 88.5 cents for the nine months ended September 30, ~~2017. The decrease in our effective federal income tax rate in~~2018. TCF Financial's common stock dividend payout ratio was 233.3% and 52.5% for the three and nine months ended September 30, ~~2018,~~2019, compared with 29.4% and 36.6% for the same periods in 2018. TCF Financial's primary funding sources for dividends are dividends received from TCF Bank.

On October 24, 2019, our board of directors declared a regular quarterly cash dividend of $0.35 per common share payable on December 2, 2019 to shareholders of record at the ~~nine months ended~~close of business on November 15, 2019, and declared a quarterly cash dividend of $0.35625 per depositary share payable on December 2, 2019 to shareholders of record of the depositary shares, each representing a 1/1,000th interest in a share of the 5.70% Series C Non-Cumulative Perpetual Preferred Stock, at the close of business on November 15, 2019.

Common Shareholders' Equity Total common shareholders' equity was $5.5 billion, or 12.04% of total assets, at September 30, 2017, was primarily due to the benefit from the enactment of the Tax Cuts and Jobs Act which reduced the federal corporate tax rate to 21% effective January 1, 2018, and $6.6 million of benefit from federal historic tax credits recorded during the nine months ended September 30, 2018, partially offset by the benefit from stock option exercises that occurred in the nine months ended September 30, 2017. We had no uncertain tax positions during the nine months ended September 30, 2018 and 2017.

~~During the fourth quarter of 2017, "H.R.1"~~2019, compared with $2.4 billion, or 9.99%, referred to as the "Tax Cuts and Jobs Act" was signed into law. The Tax Cuts and Jobs Act, among other items, reduced the corporate federal income tax rate from a maximum rate of 35% to a flat tax rate of 21% effective January 1, 2018. Accounting guidance required the effects of changes in tax law to be recognized and recorded in the interim period in which the law was enacted. As such, our deferred tax assets and liabilities which, prior to the enactment, were valued at a federal rate of 35% were revalued to the newly enacted federal tax rate of 21%. The impact of the Tax Cuts and

Jobs Act resulted in a $46.7 million increase to income tax expense in the fourth quarter of 2017 related to continuing operations as a result of the revaluation of the net deferred tax asset of $46.0 million and an acceleration of amortization expense on the low income housing tax credit investment portfolio of $0.7 million at December 31, ~~2017.~~

~~Liquidity~~

~~Liquidity risk is the potential that we will be unable to meet our obligations as they come due because~~2018. Tangible common equity was $4.0 billion, or 9.09% of ~~an inability to liquidate~~total tangible assets, or obtain adequate funding (referred to as "funding liquidity risk") or that we cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (referred to as "market liquidity risk").

Funding liquidity risk is managed to ensure stable, reliable and cost-effective sources of funds are available to satisfy deposit withdrawals and lending and investment opportunities. Our ability as a financial institution to meet our current financial obligations is a function of our balance sheet structure, our ability to liquidate assets and our access to alternative sources of funds. We manage our funding needs by maintaining a level of liquid funds through our asset/liability management process. Our largest sources of liquidity on a consolidated basis are the deposit base that comes from consumer, business and municipal customers within our local markets, principal payments on loans, maturing investment securities, cash held at the FRB and unpledged investment securities available-for-sale. Total deposits increased $1.80 billion during the nine months ended September 30, 2018. Our loan-to-deposit plus collateralized customer deposits ratio was 93.5% at September 30, ~~2018 and 100.7%~~2019, compared with $2.2 billion, or 9.32%, at December 31, ~~2017. We had $281.8 million of cash deposits held at the FRB~~2018. Book value per common share was $35.82 at September 30, ~~2018,~~2019, compared ~~to $143.7 million~~with $26.85 at December 31, 2017. At September 30, 2018, we had unpledged investment securities available-for-sale with an amortized cost of $1.7 billion and available unused wholesale sources of liquidity, including FHLB advances and borrowings from the discount window of the FRB.

Chemical Bank is a member of the FHLB and as such has access to short-term and long-term advances from the FHLB that are generally secured by residential mortgage first lien loans. We had short-term and long-term FHLB advances outstanding of $2.1 billion2018. Tangible book value per common share was $26.18 at September 30, 2019, compared with $24.87 at December 31, 2018. ~~Our additional borrowing availability~~See "Consolidated Financial Condition Analysis — Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

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Non-GAAP Financial Measures

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include our tangible book value per common share; tangible common shareholders' equity; presentation of net interest income and net interest margin on a fully tax-equivalent ("FTE") basis; our adjusted efficiency ratio (which excludes merger-related expenses, loss on transfer of legacy TCF auto loans to held-for-sale, termination of interest rate swaps, write-down of company-owned vacant land parcels, gains from sale of certain investment securities, loan servicing rights impairment, CFPB/OCC settlement adjustment, lease financing equipment depreciation, net interest income FTE adjustment and amortization of intangible assets); and other adjusted information presented excluding merger-related expenses and non-core items (defined as loss on transfer of legacy TCF auto loans to held-for-sale, termination of interest rate swaps, write-down of company-owned vacant land parcels, gains from sale of certain investment securities, loan servicing rights impairment and CFPB/OCC settlement adjustment) including net income, diluted earnings per share, return on average assets, return on average common shareholders' equity, return on average tangible common shareholders' equity tangible book value per common share and tangible common equity to tangible assets. Management believes that the ~~FHLB, subject~~presentation of these non-GAAP financial measures (i) provides important supplemental information that contributes to ~~certain requirements, was $547.9 million at September 30, 2018. We can also borrow from~~a proper understanding of our operating performance, (ii) enables a more complete understanding of factors and trends affecting our business and (iii) allows investors to evaluate our performance in a manner similar to management, the ~~FRB's discount window~~financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP financial measures internally in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to ~~meet short-term liquidity requirements. These borrowings~~investors of our performance. 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 ~~secured~~uniformly applied. Although non-GAAP financial measures are frequently used by ~~investment securities and/~~stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or ~~certain loan types, with each category~~as a substitute for analyses of ~~assets carrying various borrowing capacity percentages. At September 30, 2018, we maintain an unused borrowing capacity of $94.0 million with the FRB's discount window based upon pledged collateral~~results as of that date. We also had the ability to borrow an additional $425.0 million of federal funds from multiple third-party financial institutions at September 30, 2018. It is management's opinion that our borrowing capacity could be expanded, if deemed necessary, as it has additional borrowing capacity available at the FHLB and we have a significant amount of additional assets that could be used as collateral at the FRB's discount window.reported under GAAP.

We manage our liquidity position to provide the cash necessary to pay dividends to shareholders, invest in new subsidiaries, enter new banking markets, pursue investment opportunities and satisfy other operating requirements. Our primary source of liquidity is dividends from Chemical Bank.

Federal and state banking laws place certain restrictions on the amount of dividends that a bank may pay to its parent company. During the nine months ended September 30, 2018, Chemical Bank paid $84.3 million in dividends to us, and we paid cash dividends to shareholders of $64.6 million. The earnings of Chemical Bank are the principal source of funds to pay cash dividends to our shareholders. Chemical Bank had net income of $218.2 million during the nine months ended September 30, 2018, compared to net income of $162.7 million during the year ended December 31, 2017. Over the long term, cash dividends to shareholders are dependent upon earnings, capital requirements, regulatory restraints and other factors affecting Chemical Bank.

The following ~~liquidity ratios compare certain assets~~tables provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. A reconciliation of net interest income and ~~liabilities~~net interest margin (FTE) to ~~total deposits or total assets.~~the most directly comparable GAAP financial measure can be found within the Net Interest Income subheading of this report.

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The computation of the adjusted diluted earnings per common share was as follows:

September 30, 2018 December 31, 2017
Investment securities available-for-sale to total deposits 17.7 % 14.4 %
Loans to total deposits⁽¹⁾
93.5
100.7
Interest-earning assets to total assets 90.0
89.5
Interest-bearing deposits to total deposits 74.0
72.7



		Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands, except per share data)		2019			2018		2019			2018
Net income available to common shareholders		$	19,654		$	83,702	$	175,588		$	206,131
Less: Earnings allocated to participating securities		—			13		19			30
Earnings allocated to common shareholders	(a)	19,654			83,689		175,569			206,101
Plus: Merger-related expenses		111,259			—		124,943			—
Non-core items:
Plus: Loss on transfer of legacy TCF auto finance portfolio to held-for-sale⁽¹⁾		19,264			—		19,264			—
Plus: Termination of interest rate swaps⁽²⁾		17,302			—		17,302			—
Less: Gain on sale of certain investment securities⁽³⁾		(5,869		)	—		(5,869		)	—
Plus: Write-down of company-owned vacant land parcels⁽⁴⁾		5,890			—		5,890			—
Plus: Loan servicing rights impairment⁽²⁾		4,520			—		4,520			—
Plus: CFPB/OCC settlement adjustment⁽⁴⁾		—			—		—			32,000
Total non-core items		41,107			—		41,107			32,000
Less: Related income tax expense, net of benefits⁽⁵⁾		46,213			—		49,481			6,491
Total adjustments, net of tax		106,153			—		116,569			25,509
Adjusted earnings allocated to common stock	(b)	$	125,807		$	83,689	$	292,138		$	231,610

Weighted-average common shares outstanding used in diluted earnings per common share calculation⁽⁶⁾	(c)	128,754,588			83,808,063		98,055,279			84,791,124

Diluted earnings per common share	(a) / (c)	$	0.15		$	1.00	$	1.79		$	2.43
Adjusted diluted earnings per common share	(b) / (c)	0.98			1.00		2.98			2.73

Net income attributable to TCF		$	22,148		$	86,196	$	183,069		$	218,706
Total adjustments, net of tax		106,153			—		116,569			25,509
Adjusted net income attributable to TCF		$	128,301		$	86,196	$	299,638		$	244,215


⁽¹⁾	~~For liquidity purposes, collateralized customer deposits are treated similarly to deposits~~Included within Net (losses) gains on sales of loans and ~~are included in this calculation.~~leases


⁽²⁾	Included within Other noninterest income.


⁽³⁾	Included within Net gains (losses) on investment securities.


⁽⁴⁾	Included within Other noninterest expense.


⁽⁵⁾	Included within Income tax (benefit) expense.


⁽⁶⁾	Assumes conversion of common shares, as applicable.

~~Market Risk~~

~~Market risk is~~The computation of the risk to a financial institution's condition resulting from adverse movements in market rates or prices, including, but not limited to, interest rates, foreign exchange rates, commodity prices, or equity prices. Interest rate risk, a form of market risk, is the current and prospective risk to earnings or capital arising from movement in interest rates. Interest rate risk is due to the difference in the repricing and maturity dates between financial assets and funding sources, as well as changes in the relationship between benchmark rate indices used to reprice various assets and liabilities, product options available to customers, competitive pressures and other variables. Our net interest income is largely dependent upon the effective management of interest rate risk. Our goal is to avoid a significant decrease inadjusted net interest income and thus an adverse impact on our profitability, in periods of changing interest rates. Sensitivity of earnings to interest rate changes arises when yields on assets change differently from the interest costs on liabilities. Interest rate sensitivity is determined by the amount of interest-earning assets and interest-bearing liabilities repricing within a specific time period and the magnitude by which interest rates change on the various types of interest-earning assets and interest-bearing liabilities. The management of interest rate sensitivity includes monitoring the maturities and repricing opportunities of interest-earning assets and interest-bearing liabilities. Our interest rate risk is managed through policies and risk limits approved by the boards of directors of the Corporation and Chemical Bank and an Asset and Liability Committee ("ALCO"). The ALCO, which is comprised of executive and senior management from various areas of the Corporation and Chemical Bank, including finance, lending, investments and deposit gathering, meets regularly to execute asset and liability management strategies. The ALCO establishes guidelines and monitors the sensitivity of earnings to changes in interest rates. The goal of the ALCO process is to manage the impact on net interest income and the net present value of future cash flows of probable changes in interest rates within authorized risk limits.

The primary technique utilized to measure our interest rate risk is simulation analysis. Simulation analysis forecasts the effects on the balance sheet structure and net interest income under a variety of scenarios that incorporate changes in interest rates, the shape of the U.S. Treasury yield curve, interest rate relationships and the mix of assets and liabilities and loan prepayments. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity and customer preferences. These assumptions are inherently uncertainmargin was as they are subject to fluctuation and revision in a dynamic environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance sheet components, interest rate changes, changes in market conditions and management strategies.

Our interest rate sensitivity is estimated by first forecasting the next twelve months of net interest income under an assumed environment of constant market interest rates. Next, we compare the results of various simulation analyses to the constant interest rate forecast (base case). At ~~September 30, 2018~~ and December 31, 2017, we projected the change in net interest income during the next twelve months assuming short-term market interest rates to uniformly and gradually increase or decrease by 100 and 200 basis points in a parallel fashion over the entire yield curve during the same time period. Additionally, we projected the change in net interest income of an immediate 300 and 400 basis point increase in market interest rates at September 30, 2018 and December 31, 2017. We did not project a 300 or 400 basis point decrease in interest rates as the likelihood of a decrease of this size was considered unlikely given prevailing interest rate levels. These projections were based on our assets and liabilities remaining static over the next twelve months, while factoring in probable calls and prepayments of certain investment securities and residential mortgage and consumer loans. The ALCO regularly monitors our forecasted net interest income sensitivity to ensure that it remains within established limits.

~~A summary of our interest rate sensitivity at~~ ~~September 30, 2018~~ ~~and December 31, 2017~~ follows:

Gradual Change
Immediate
Change
September 30, 2018
Twelve month interest rate change projection (in basis points) -200 -100 0 +100 +200 +300 +400
Percent change in net interest income vs. constant rates (2.3 )% (0.3 )% — % (0.2 )% (0.2 )% 1.2 % 1.8 %
December 31, 2017
Twelve month interest rate change projection (in basis points) -200 -100 0 +100 +200 +300 +400
Percent change in net interest income vs. constant rates (3.6 )% (1.2 )% — % 0.9 % (2.1 )% (3.6 )% (4.2 )%



	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2019			2018			2019			2018
Net Interest Income	$	371,793		$	253,502		$	880,279		$	755,342
Purchase accounting accretion and amortization	28,411			—			28,411			—
Net interest income, excluding purchase accounting accretion and amortization	$	343,382		$	253,502		$	851,868		$	755,342
Net interest margin (FTE)	4.14		%	4.73		%	4.36		%	4.70		%
Purchase accounting accretion and amortization	0.31			—			0.14			—
Net interest margin, excluding purchase accounting accretion and amortization (FTE)	3.83		%	4.73		%	4.22		%	4.70		%

~~At September 30, 2018, our model simulations projected that a 100, 200 basis point increases in interest rates would result in negative variances in net interest income~~

Table of ~~0.2%, relative~~Contents

The computation of the adjusted return on average assets, common equity, average tangible common equity and average tangible common equity was as follows:



		Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)		2019			2018			2019			2018
Adjusted net income after tax expense:
Income after tax expense	(a)	$	24,978		$	88,839		$	192,470		$	227,472
Plus: Merger-related expenses		111,259			—			124,943			—
Plus: Non-core items		41,107			—			41,107			32,000
Less: Related income tax expense, net of tax benefits		46,213			—			49,481			25,509
Adjusted net income after tax expense for ROAA calculation	(b)	$	131,131		$	88,839		$	309,039		$	233,963
Net income available to common shareholders	(c)	$	19,654		$	83,702		$	175,588		$	206,131
Plus: Other intangibles amortization		4,544			911			6,154			2,572
Less: Related income tax expense		1,085			220			1,470			620
Net income available to common shareholders used in ROATCE calculation	(d)	$	23,113		$	84,393		$	180,272		$	208,083

Adjusted net income available to common shareholders:
Net income available to common shareholders		$	19,654		$	83,702		$	175,588		$	206,131
Plus: Non-core items		41,107			—			41,107			32,000
Plus: Merger-related expenses		111,259			—			124,943			—
Less: Related income tax expense, net of tax benefits		46,213			—			49,481			25,509
Net income available to common shareholders used in adjusted ROACE calculation	(e)	125,807			83,702			292,157			212,622
Plus: Other intangibles amortization		4,544			911			6,154			2,572
Less: Related income tax expense		1,085			220			1,470			620
Net income available to common shareholders used in adjusted ROATCE calculation	(f)	$	129,266		$	84,393		$	296,841		$	214,574
Average balances:
Average assets	(g)	$	39,094,366		$	22,904,404		$	29,283,275		$	23,031,108
Total average equity		$	4,683,129		$	2,511,983		$	3,316,504		$	2,534,758
Less: Non-controlling interest in subsidiaries		25,516			23,548			26,558			25,133
Total TCF Financial Corporation shareholders' equity		4,657,613			2,488,435			3,289,946			2,509,625
Less: Preferred stock		169,302			169,302			169,302			169,302
Average total common shareholders' equity used in ROACE calculation	(h)	$	4,488,311		$	2,319,133		$	3,120,644		$	2,340,323
Less: Average goodwill, net		890,155			154,757			402,583			154,757
Less: Average other intangibles, net		142,925			21,772			61,208			22,549
Average tangible common shareholders' equity used in ROATCE calculation	(i)	$	3,455,231		$	2,142,604		$	2,656,853		$	2,163,017

ROAA⁽¹⁾	(a) / (g)	0.26		%	1.55		%	0.88		%	1.32		%
Adjusted ROAA⁽¹⁾	(b) / (g)	1.34			1.55			1.41			1.46
ROACE⁽¹⁾	(c) / (h)	1.75			14.44			7.50			11.80
Adjusted ROACE⁽¹⁾	(e) / (h)	11.21			14.44			12.48			13.26
ROATCE⁽¹⁾	(d) / (i)	2.68			15.76			9.05			12.89
Adjusted ROATCE⁽¹⁾	(f) / (i)	14.96			15.76			14.90			14.47


⁽¹⁾	Annualized.

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The computation of the adjusted efficiency ratio was as follows:



		Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)		2019			2018			2019			2018
Noninterest expense	(a)	$	425,620		$	246,423		$	915,544		$	764,442
Less: Merger-related expenses		111,259			—			124,943			—
Less: CFPB/OCC settlement adjustment		—			—			—			32,000
Less: Write-down of company-owned vacant land parcels		5,890			—			5,890			—
Adjusted noninterest expense		$	308,471		$	246,423		$	784,711		$	732,442
Less: Lease financing equipment depreciation		19,408			19,525			57,797			54,744
Less: Other intangibles amortization		4,544			911			6,154			2,572
Adjusted noninterest expense, efficiency ratio	(b)	$	284,519		$	225,987		$	720,760		$	675,126

Net interest income		$	371,793		$	253,502		$	880,279		$	755,342
Noninterest income		94,258			112,064			307,480			330,529
Total revenue	(c)	$	466,051		$	365,566		$	1,187,759		$	1,085,871

Noninterest income		$	94,258		$	112,064		$	307,480		$	330,529
Plus: Loss on transfer of legacy TCF auto loans to held-for-sale		19,264			—			19,264			—
Plus: Termination of interest rate swaps		17,302			—			17,302			—
Less: Gain on sales of certain investment securities		(5,869		)	—			(5,869		)	—
Plus: Loan servicing rights impairment		4,520			—			4,520			—
Adjusted noninterest income		129,475			112,064			342,697			330,529
Net interest income		371,793			253,502			880,279			755,342
Plus: Net interest income FTE adjustment		2,488			2,112			5,547			6,269
Adjusted net interest income		374,281			255,614			885,826			761,611
Less: Lease financing equipment depreciation		19,408			19,525			57,797			54,744
Adjusted total revenue, efficiency ratio	(d)	$	484,348		$	348,153		$	1,170,726		$	1,037,396

Efficiency ratio	(a) / (c)	91.32		%	67.41		%	77.08		%	70.40		%
Adjusted efficiency ratio	(b) / (d)	58.74			64.91			61.57			65.08

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The computations of tangible common equity to ~~the base case over the next twelve-month period, whereas a 300 or 400 basis point increase would result in positive variance in net income of 1.2%~~tangible assets and 1.8%, respectively, relative to the based case over the next twelve-month period. At September 30, 2018, our model simulations also projected that decreases in interest rates of 100 and 200 basis points would result in negative variances in net interest income of 0.3% and 2.3%, respectively, relative to the base case over the next twelve-month period. The likelihood of a decrease in interest rates beyond 200 basis points at September 30, 2018 was considered to be unlikely given prevailing interest rate levels. tangible book value per common share were as follows:



(Dollars in thousands, except per share data)		At September 30, 2019			At December 31, 2018
Total equity		$	5,693,417		$	2,556,260
Less: Non-controlling interest in subsidiaries		23,313			18,459
Total TCF Financial Corporation shareholders' equity		5,670,104			2,537,801
Less: Preferred share		169,302			169,302
Total common shareholders' equity	(a)	5,500,802			2,368,499
Less: Goodwill		1,265,111			154,757
Less: Other intangibles, net		215,910			20,496
Tangible common shareholders' equity	(b)	$	4,019,781		$	2,193,246

Total assets	(c)	$	45,692,511		$	23,699,612
Less: Goodwill		1,265,111			154,757
Less: Other intangibles, net		215,910			20,496
Tangible assets	(d)	$	44,211,490		$	23,524,359

Common stock shares outstanding	(e)	153,571,381			88,198,460

Common equity to assets	(a) / (c)	12.04		%	9.99		%
Tangible common equity to tangible assets	(b) / (d)	9.09			9.32

Book value per common share	(a) / (e)	$	35.82		$	26.85
Tangible book value per common share	(b) / (e)	26.18			24.87

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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 Corporation considers interest rate risk to be one of its more significant market risks.

Interest Rate Risk

~~Information concerning quantitative~~

TCF's ALCO and ~~qualitative disclosures about market~~the Finance Committee of TCF Financial Corporation's Board of Directors have established interest rate risk policy limits. Interest rate risk is ~~contained~~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. The major sources of the Corporation's interest rate risk are timing differences in the ~~discussion regarding~~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 Corporation'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 Corporation, 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.

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 ~~under~~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. These projections were based on our assets and liabilities remaining static over the ~~captions "Liquidity"~~next twelve months and ~~"Market Risk" herein and in our Annual Report on Form 10-K for~~factored into the ~~year ended~~ ~~December 31, 2017, which are here incorporated by reference.~~simulation model.

~~Since~~ ~~December 31, 2017, we do not believe that there has been a material change~~



	Impact on Net Interest Income
(Dollars in millions)	September 30, 2019
Immediate change in interest rates:
+200 basis points	$	59,400		3.9	%
+100 basis points	35,500			2.3
-100 basis points	(74,700		)	(4.9	)

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Management also uses EVE to measure risk in the ~~nature or categories~~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 our primary market risk exposure, or the particular markets that present the primary risk of loss to us. Our market risk exposure is mainly comprised of vulnerability to interest rate risk. Prevailing interest rates and interest rate relationships are largely determined by market factors that are beyond our control. Certain information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned "Forward-Looking Statements" in this report for a discussionall balance sheet positions. The valuation of the ~~limitations~~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. As with the net interest income simulation model, EVE analysis is based on ~~our responsibility for such statements.~~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.

Item 4. Controls and ~~Procedures~~Procedures.

Disclosure Controls and Procedures TCF carried out an evaluation, ~~was performed~~ under the supervision and with the participation of ~~the Corporation's~~TCF's management, including ~~the~~TCF's Chief Executive Officer ~~and~~(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 Corporation's~~TCF’s disclosure controls and procedures aspursuant to Rules 13a-15 and 15d-15 of the ~~end~~Securities Exchange Act of ~~the period covered by this report.~~1934, as amended (the "Exchange Act"). Based on ~~and as of the time of~~ that evaluation, ~~the Corporation's management, including the Chief~~TCF’s Principal Executive Officer and ~~Chief~~Principal Financial Officer concluded that ~~the Corporation's~~TCF's disclosure controls and procedures were effective as of September 30, 2019.

Any system of disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system inherently has limitations and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Therefore, no assessment of a cost-effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by ~~the Corporation~~TCF in ~~the~~ reports ~~it files~~filed or ~~submits~~submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~SEC's~~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 TCF'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.

~~In the third quarter of 2018, we completed substantial upgrades to our core operating systems, which we use to accumulate financial data used~~

Changes in ~~our financial reporting. We implemented this upgrade to help prepare us~~Internal Control Over Financial Reporting Management is responsible for ~~future growth, to strengthen regulatory compliance~~establishing and to enhance customer satisfaction. We utilized our upgraded system to generate financial statements for our quarter ended September 30, 2018. The upgrade was not made in response to any deficiency in our internal controls. Other than the upgrades to our core operating systems, there was no change in the Corporation'smaintaining adequate internal control over financial reporting ~~that occurred during the quarter ended September 30, 2018 that has materially affected, or that is reasonably likely to materially affect, the Corporation's internal~~for TCF. Internal control over financial ~~reporting.~~reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of TCF; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of TCF are only being made in accordance with authorizations of management and directors of TCF; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of TCF’s assets that could have a material effect on the financial statements.

The Merger, which was completed on August 1, 2019, had a material impact on the financial position, results of operations and cash flows of the combined company from the date of acquisition through September 30, 2019. The Merger also resulted in significant changes to the combined company's internal controls over financial reporting. We are in the process of assessing, as well as planning for the integration of, internal controls over financial reporting for the combined company and will report on our assessment of our internal controls over financial reporting in our next annual report.

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Part ~~II.~~II - Other Information ��

Item 1. Legal ~~Proceedings~~Proceedings.

~~On February 22, 2016, two putative class action~~

From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and ~~derivative complaints were filed in~~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 ~~Circuit Court for Oakland County, Michigan by individuals purporting to be a shareholder~~Securities and Exchange Commission, the Federal Reserve, the Office of ~~Talmer Bancorp, Inc. ("Talmer"). The actions are styled~~ ~~Regina Gertel Lee v. Chemical Financial Corporation, et. al., Case No. 2016-151642-CB and~~ ~~City~~the Comptroller of ~~Livonia Employees’ Retirement System v. Chemical Financial Corporation et. al.,~~ ~~Case No. 2016-151641-CB. These complaints purport to be brought derivatively on behalf of Talmer against~~ the ~~individual defendants, and individually and on behalf of all others similarly situated against Talmer~~Currency and the Corporation (collectively, the "Defendants"). The complaints allege, among other things, that the directors of Talmer breached their fiduciary duties to Talmer’s shareholders in connection with the merger by approving a transaction pursuant to an allegedly inadequate process that undervalues Talmer and includes preclusive deal protection provisions, and that the Corporation allegedly aided and abetted the Talmer directors in breaching their duties to Talmer’s shareholders. The complaints also allege that the individual defendants have been unjustly enriched. Both complaints seek various remediesConsumer Financial Protection Bureau which may impose sanctions on ~~behalf of the putative class (consisting of all shareholders of Talmer who are not~~TCF for failures related to ~~or affiliated with any defendant). They request, among~~regulatory compliance. From time to time borrowers and other ~~things, that the Court enjoin the merger from being consummated~~customers, and employees and former employees have also brought actions against TCF, in accordance with its agreed-upon terms, direct the Talmer directors to exercise their fiduciary duties, rescind the merger agreement to the extent that it is already implemented, award the plaintiff all costssome cases claiming substantial damages. TCF and ~~disbursements in each respective action (including reasonable attorneys’ and experts’ fees), and grant such further relief as the court deems just and proper. The~~ ~~City of Livonia~~ ~~plaintiff amended its complaint on April 21, 2016 to add additional factual allegations, including but not limited to allegations that Keefe Bruyette & Woods, Inc. ("KBW") served as a~~other financial advisor for the proposed merger despite an alleged conflict of interest, that Talmer’s board acted under actual or potential conflicts of interest, and that the defendants omitted and/or misrepresented material information about the proposed merger in the Form S-4 Registration Statement relating to the proposed merger. These two cases were consolidated as ~~In re Talmer Bancorp Shareholder Litigation~~, case number 2016-151641-CB, per an order entered on May 12, 2016. On October 31, 2016, the plaintiffs in this consolidated action again amended their complaint, adding additional factual allegations, adding KBW as a defendant, and asserting that KBW acted in concert with the Corporation to aid and abet breaches of fiduciary duty by Talmer's directors. The Defendants all filed motions for summary disposition seeking dismissal of all claims with prejudice. The Court issued an opinion and order on those motions on May 4, 2017 and granted dismissal to the Corporation, but denied the motions filed by KBW and the individual defendants. KBW and the individual defendants filed an application seeking leave to appeal the Court's ruling to the Michigan Court of Appeals. That application was denied by the Michigan Court of Appeals on August 16, 2017. On June 8, 2017, the Defendants filed a notice with the Court that the plaintiffs had failed to timely certify a class as required by the Michigan Court Rules. Upon the filing of that notice, the ~~City of Livonia~~ case became an individual action brought by the two named plaintiffs, and cannot proceed as a class action. On October 19, 2017, the Defendants filed motions for summary disposition under MCR 2.116(C) (10) in the ~~City of Livonia~~ case, again seeking the dismissal of the case. A hearing on those motions was held on April 11, 2018. On May 11, 2018, the Court issued its opinion and order granting the motion of the Defendants, and dismissing the case. On May 25, 2018, the plaintiffs filed a claim of appeal from the Court's decision with the Michigan Court of Appeals. By order dated August 7, 2018, the Michigan Court of Appeals consolidated the ~~City of Livonia~~ ~~case with the~~ ~~Nicholl~~ ~~case discussed below.~~

~~On June 16, 2016, the same putative class plaintiff that filed the~~ ~~City of Livonia~~ ~~state court action discussed in the preceding paragraph filed a complaint in the United States District Court for the Eastern District of Michigan , styled~~ ~~City of Livonia Employees’ Retirement System v~~. ~~Chemical Financial Corporation, et. al.,~~ ~~Docket No. 1:16-cv-12229. The plaintiff purports to bring this action~~ "~~individually and on behalf of all others similarly situated,~~" and requests certification as a class action. The Complaint alleges violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934 and alleges, among other things, that the Defendants issued materially incomplete and misleading disclosures in the Form S-4 Registration Statement relating to the proposed merger. The Complaint contains requests for relief that include, among other things, that the Court enjoin the proposed transaction unless and until additional information is provided to Talmer’s shareholders, declare that the Defendants violated the securities laws in connection with the proposed merger, award compensatory damages, interest, attorneys’ and experts’ fees, and that the Court grant such other relief as it deems just and proper. Talmer, the Corporation, and the individual defendants all believe that the claims asserted against each of them in this lawsuit are without merit and intend to vigorously defend against this lawsuit. On October 18, 2016, the Federal Court entered a stipulated order staying this action until the Oakland County Circuit Court issues rulings on motions for summary disposition ~~In re Talmer Bancorp Shareholder Litigation~~, case number 2016-151641-CB. Following the Oakland County Circuit Court's denial of the Motions by KBW and the individual defendants and their ensuing application for leave to appeal that ruling, the Federal Court issued an order extending the stay of this action. On November 13, 2017, the Federal Court issued an Order Directing Plaintiff To Show Cause Why The Stay Should Not Be Lifted. On June 29, 2018, the Court issued an Order Lifting Stay. The plaintiff filed an amended complaint on July 27, 2018. In response to the amended complaint, the Defendants filed a Motion To Dismiss on August 24, 2018. A ruling on the Defendant's motion is awaited.

~~In response to the failure of the~~ ~~City of Livonia~~ ~~case to qualify as a class action, on July 31, 2017, the same attorneys who filed the~~ ~~City of Livonia~~ ~~action field a new lawsuit in the Oakland County, Michigan Circuit Court, based on the Talmer transaction. That case is styled~~ ~~Kevin Nicholl v Gary Torgow et al,~~ ~~Case No. 2017-160058-CB. The~~ ~~Nicholl~~ ~~case makes substantially the same~~

~~claims as were brought in the~~ ~~City of Livonia~~ ~~case, and seeks certification of a shareholder class. The~~ ~~Nicholl~~ ~~case was assigned to Judge Wendy Potts, the same judge presiding over the~~ ~~City of Livonia~~ case. On November 22, 2017, the plaintiff filed a First Amended Complaint purporting to add the City of Livonia Employees’ Retirement System and Regina Gertel Lee as additional named plaintiffs in the case. The Defendants moved to strike the class allegations in the ~~Nicholl~~ ~~case based on the failure of the plaintiffs to timely file a motion to certify a class. On April 2, 2018, the Court entered an opinion and order confirming that the class allegations in the~~ ~~Nicholl~~ ~~case are stricken, and the~~ ~~Nicholl~~ ~~case will proceed as an individual action only. On April 23, 2018, the plaintiffs filed a claim of appeal with the Michigan Court of Appeals from the Court’s April 2, 2018 opinion and order.~~

~~As in the~~ ~~City of Livonia~~ ~~case, the Defendants filed motions for summary disposition in the~~ ~~Nicholl~~ ~~case, seeking dismissal of the~~ ~~Nicholl~~ ~~case. Argument on these motions was heard on April 11, 2018, together with arguments on the summary disposition motions of the Defendants in the~~ ~~City of Livonia~~ ~~case. On May 8, 2018 the Court issued its opinion and order granting the motion of the Defendants, and dismissing the~~ ~~Nicholl~~ ~~case. On May 25, 2018 the plaintiffs filed a claim of appeal from the Court’s decision with the Michigan Court of Appeals. The Court’s dismissal of the~~ ~~Nicholl~~ ~~case obviates the April 23, 2018 appeal filed by the~~ ~~Nicholl~~ ~~plaintiff with respect to the Court’s order of April 2, 2018 finding that the plaintiff failed to timely certify a class in the~~ ~~Nicholl~~ ~~litigation. By order dated August 7, 2018, the Michigan Court of Appeals consolidated the~~ ~~Nicholl~~ ~~case with the~~ ~~City of Livonia~~ ~~case.~~

~~On January 3, 2018, the plaintiffs in the~~ ~~City of Livonia~~ case filed a Motion For Voluntary Dismissal Without Prejudice. Defendants filed an opposition to that motion. The Court did not rule on that motion, pending ruling on the Defendant’s summary disposition motions in the ~~City of Livonia~~ ~~and~~ ~~Nicholl~~ ~~cases. The Court's dismissal of the City of Livonia case obviates the need for a ruling on this motion.~~

~~In addition, we~~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 ~~actions~~proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the ~~ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to~~aggregate, would have a material adverse effect on ~~our Consolidated Financial Condition~~the consolidated financial position, operating results or ~~Results~~cash flows of ~~Operations.~~ TCF.

Item 1A. Risk ~~Factors~~Factors.

~~Information concerning~~

There were no material changes in the risk factors ~~is contained in this report under the heading "Forward-Looking Statements" and in Item 1A, "Risk Factors,"~~for TCF in the ~~Corporation's~~quarter covered by this report. You should carefully consider the risks and risk factors included under Part 1, Item 1A. in each of TCF’s and Legacy TCF’s Annual ~~Report~~Reports on Form 10-K for the year ended December 31, ~~2017~~2018, and in TCF’s other SEC filings, including the Joint Proxy Statement/Prospectus regarding the Merger that TCF filed with the SEC on May 3, 2019 pursuant to Rule 424(b)(3). 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~~Proceeds.

~~The following schedule summarizes our total monthly share~~

Share repurchase activity for the ~~three months~~quarter ended September 30, ~~2018:~~2019 was as follows:

Issuer Purchases of Equity Securities
Period Beginning on First Day of Month Ended
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs

Maximum Number of Shares that May Yet Be Purchased Under
Plans or Programs
July 31, 2018 557
$ 56.85
—
500,000
August 31, 2018 612
57.98
—
500,000
September 30, 2018 1,541
54.63
—
500,000
Total 2,710
$ 55.84
—



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan
July 1 to July 31, 2019
Share repurchase program⁽¹⁾	780,716	$	41.39	780,716
Employee transactions⁽²⁾	2,153	41.33		N.A.
August 1 to August 31, 2019
Employee transactions⁽²⁾	6,899	38.14		N.A.
September 1 to September 30, 2019
Employee transactions⁽²⁾	2,777	37.44		N.A.
Total
Share repurchase program⁽¹⁾	780,716	$	41.39	780,716
Employee transactions⁽²⁾	11,829	38.55		N.A.

N.A. Not Applicable

(1)

~~Represents~~On July 25, 2018, the Legacy TCF Board of Directors approved a $150.0 million increase to Legacy TCF's common stock repurchase program, with repurchases to be based on market conditions, the trading price of TCF shares ~~delivered or attested~~and other factors. This repurchase authorization was terminated in ~~satisfaction~~connection with the completion of the ~~exercise~~Merger effective August 1, 2019. The total number of shares purchased and the average price ~~and/~~paid have been retrospectively adjusted to reflect the equivalent number of shares issued in the Merger.

(2)

Represents restricted stock withheld pursuant to the terms of awards granted under either the Legacy TCF Financial Incentive Stock Program or the Legacy TCF Omnibus Incentive Plan to offset tax withholding obligations ~~by employees who received~~that occur upon vesting and release of restricted stock. Both plans provide that the value of shares withheld shall be the average of ~~our~~the high and low prices of common stock ~~in 2018 under our share-based compensation plans, as these plans permit employees to use our stock to satisfy such obligations based on the market value~~ of ~~the stock~~Legacy TCF on the date the relevant transaction occurs. With respect to employee transactions from July 1 to July 31, 2019, the total number of ~~exercise or date~~shares purchased and the average price paid have been retrospectively adjusted to reflect the equivalent number of ~~vesting, as applicable.~~shares issued in the Merger.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Other Information.

The following information is being filed herewith in lieu of filing such information on a Current Report on Form 8-K under Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers:

Amendment and Restatement of Employment Agreement with Craig R. Dahl

On November 6, 2019, TCF made and entered into an amended and restated employment agreement (the “Employment Agreement”) with Craig R. Dahl in order to align certain terms of Mr. Dahl’s employment with those of other executive officers of the Corporation.

The Employment Agreement changed certain terms of Mr. Dahl’s employment that were contained in that certain Amended and Restated Employment Agreement (the “Merger Employment Agreement”), dated January ~~2008, our board~~27, 2019, which became effective on August 1, 2019. Below is a summary of ~~directors authorized~~ the ~~repurchase~~materially changed terms of ~~up to 500,000 shares~~Mr. Dahl’s employment following execution of ~~our common stock~~the Employment Agreement:

The cash payment called for in the ~~open market.~~ event of a termination by the Corporation without Cause, or by Mr. Dahl with Good Reason was changed from 2.5 times the sum of (i) his Annual Base Salary and (ii) his annual bonus (which was set as to equal 100% of his salary) to 2.5 times the sum of (i) Mr. Dahl’s Annual Base Salary and (ii) the average of Mr. Dahl’s annual bonus for the three most recently completed fiscal years;

in the event of a termination by the Corporation without Cause, by Mr. Dahl for Good Reason, or upon death, disability or retirement on one year's notice, all of Mr. Dahl’s outstanding equity awards will vest; and

The ~~repurchased shares are available for later reissuance~~definition of Change in ~~connection with potential future stock dividends, our dividend reinvestment plan, employee benefit plans and other general corporate purposes. In November 2011, our board~~Control was changed by increasing the percentage of directors reaffirmed the stock buy-back authorization with the qualification that the shares may only be repurchased if the share price is below the tangible book value per share of our common stock at the timesecurities of the ~~repurchase. No shares~~Corporation that any person would have ~~been repurchased under our Common Stock Repurchase Program since~~to become the ~~board authorization.~~beneficial owner of in order to qualify as a Change in Control from 30% to 40% and the definition was expanded to include an “Active Change in Control Proposal Period” as defined in the Employment Agreement;

Other than as described above, the material terms of Mr. Dahl’s employment contained in the Merger Employment Agreement remain unchanged, and the description of them contained in the Corporation’s Current Report on Form 8-K filed on January 28, 2019 is incorporated herein by reference.

The foregoing description of the Employment Agreement is qualified in all respects by reference to the full text of the Employment Agreement, a copy of which is attached as Exhibit 10(a) to this Quarterly Report on Form 10-Q.

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Item 6. ~~Exhibits~~Exhibits.

~~Exhibits. The following exhibits are filed as part of this report on Form 10-Q:~~



Exhibit Number		~~Document~~Description

~~3.1~~	2(a)		~~Restated Articles~~Agreement and Plan of Incorporation. Previously filed as Exhibit 3.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 10, 2017. Here incorporated by reference.

~~3.2~~			~~Bylaws. Previously filed as Exhibit 3.2 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 28, 2018. Here incorporated by reference.~~

~~4.1~~			~~Restated Articles of Incorporation. Exhibit 3.1 is here incorporated by reference.~~

~~4.2~~			~~Bylaws. Exhibit 3.2 is here incorporated by reference.~~

~~10.1~~			~~Employment Agreement~~Merger between ~~Thomas C. Shafer,~~ Chemical Financial Corporation and ~~Chemical Bank~~,TCF Financial Corporation dated ~~July 1, 2018. Previously filed~~ as of January 27, 2019 [incorporated by reference to Exhibit ~~10.1 to the registrant's~~2.1 of TCF Financial Corporation’s Current Report on Form 8-K filed with the SEC on ~~July 3, 2018. Here incorporated by reference.~~January 28, 2019 (No. 19545732)]

~~10.2~~	3(a)		~~Employment Agreement between Dennis L. Klaeser, Chemical~~Restated Articles of Incorporation of TCF Financial Corporation ~~and Chemical Bank, dated July 1, 2018. Previously filed as~~[incorporated by reference to Exhibit ~~10.2~~3.1 to our Form 10-Q for the quarter ended March 31, 2017 (No. 17829102)]
3(b)		Amendment to the ~~registrant's~~Restated Articles of Incorporation of TCF Financial Corporation, including the Certificate of Designations of 5.70% Series C Non-Cumulative Perpetual Preferred Stock [incorporated by reference to Exhibit 3.2 of TCF Financial Corporation’s Current Report on Form 8-K filed with the SEC on ~~July 3, 2018. Here incorporated by reference.~~August 1, 2019 (No. 19993087)]

~~31.1~~	3(c)		~~Certification~~Bylaws of ~~Chief Executive Officer.~~TCF Financial Corporation, as of August 1, 2019 [incorporated by reference to Exhibit 3.3 of TCF Financial Corporation’s Current Report on Form 8-K filed with the SEC on August 1, 2019 (No. 19993087)]

~~31.2~~	4(a)		~~Certification~~Description of ~~Chief~~Capital Stock [incorporated by reference to Exhibit 4.1 of TCF Financial ~~Officer.~~Corporation’s Current Report on Form 8-K filed with the SEC on August 1, 2019 (No. 19993087)]

~~32.1~~	10(a)#*		~~Certification pursuant to 18 U.S.C. §1350.~~Amended and Restated Employment Agreement between Craig R. Dahl and TCF Financial Corporation, dated as of November 6, 2019

~~101.1~~	10(b)*		~~Interactive Data File.~~ Letter Agreement dated July 31, 2019 between Chemical Financial Corporation and Brennan Ryan [incorporated by reference to Exhibit 10.2 of TCF Financial Corporation’s Current Report on Form 8-K filed with the SEC on August 1, 2019 (No. 19993087)]
10(c)*		Amended and Restated Employment Agreement dated July 31, 2019 between Chemical Financial Corporation and Thomas C. Shafer [incorporated by reference to Exhibit 10.23 of TCF Financial Corporation’s Current Report on Form 8-K filed with the SEC on August 1, 2019 (No. 19993087)]
10(d)*		Form of Retention Time-Vesting Restricted Stock Unit Agreement [incorporated by reference to Exhibit 10.4 of TCF Financial Corporation’s Current Report on Form 8-K filed with the SEC on August 1, 2019 (No. 19993087)]
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

* Executive Contract

# Filed herein

~~Signatures~~

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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.



		~~CHEMICAL~~TCF FINANCIAL CORPORATION

~~Date:~~	~~November 8, 2018~~	~~By:~~	~~/s/ David T. Provost~~

~~David T. Provost~~	/s/ Craig R. Dahl
	Craig R. Dahl,
	Chief Executive Officer and President

	(Principal Executive Officer)

~~Date:~~	~~November 8, 2018~~	~~By:~~	/s/ Dennis L. Klaeser

	Dennis L. Klaeser,

	Executive Vice President and Chief Financial Officer

	(Principal Financial Officer)

~~Date:~~	~~November 8, 2018~~	~~By:~~	~~/s/ Kathleen S. Wendt~~
			~~Kathleen S. Wendt~~
			~~Executive Vice President and Deputy Chief Financial Officer~~
			~~(Principal Accounting Officer)~~

~~Exhibit Index~~

~~Exhibits. The following exhibits are filed as part of this report on Form 10-Q:~~



~~Exhibit~~ ~~Number~~			~~Document~~

~~3.1~~			Restated Articles of Incorporation. Previously filed as Exhibit 3.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 10, 2017. Here incorporated by reference.

~~3.2~~			~~Bylaws. Previously filed as Exhibit 3.2 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 28, 2018. Here incorporated by reference.~~

~~4.1~~			~~Restated Articles of Incorporation. Exhibit 3.1 is here incorporated by reference.~~

~~4.2~~			~~Bylaws. Exhibit 3.2 is here incorporated by reference.~~

~~10.1~~			~~Employment Agreement between Thomas C. Shafer, Chemical Financial Corporation and Chemical Bank, dated July 1, 2018. Previously filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the SEC on July 3, 2018. Here incorporated by reference.~~

~~10.2~~	/s/ Kathleen S. Wendt		~~Employment Agreement between Dennis L. Klaeser, Chemical Financial Corporation and Chemical Bank, dated July 1, 2018. Previously filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed with the SEC on July 3, 2018. Here incorporated by reference.~~
	Kathleen S. Wendt,
~~31.1~~	Executive Vice President and Chief Accounting Officer		~~Certification of Chief Executive Officer.~~

~~31.2~~			~~Certification of Chief Financial Officer.~~

~~32.1~~			~~Certification pursuant to 18 U.S.C. §1350.~~

~~101.1~~			~~Interactive Data File.~~
		(Principal Accounting Officer)

Dated: November 12, 2019

~~107~~



þMichigan	~~Quarterly Report Pursuant to Section 13~~38-2022454
(State or ~~15(d)~~other jurisdiction of ~~the Securities Exchange Act of 1934~~incorporation or organization)	(I.R.S. Employer Identification No.)



~~Michigan~~Title of each class	Trading Symbol(s)	~~38-2022454~~Name of each exchange on which registered
~~(State or Other Jurisdiction of~~ ~~Incorporation or Organization)~~ Common Stock (par value $1 per share)	TCF	~~(I.R.S. Employer~~ ~~Identification No.)~~ The NASDAQ Stock Market
Depositary shares, each representing a 1/1000th interest in a share of the 5.70% Series C Non-Cumulative Perpetual Preferred Stock
~~333 W. Fort Street, Suite 1800~~ ~~Detroit, Michigan~~ TCFCP		~~48226~~
~~(Address of Principal Executive Offices)~~		~~(Zip Code)~~The NASDAQ Stock Market



	Large accelerated filer		þ	☑	Accelerated filer	☐
	¨Non-accelerated filer	☐	Smaller reporting company	☐

~~Non-accelerated filer~~		¨		~~Smaller reporting company~~		¨

Emerging growth company		¨				☐



	Description	Page

Part I - Financial Information

~~Forward-Looking Statements~~Item 1. Financial Statements.

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

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	2

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	3

~~Part I. Financial Information~~		5

~~Item 1. Financial Statements~~		5

Consolidated Statements of ~~Financial Position as of~~ ~~September 30, 2018 (unaudited) and December 31, 2017~~		5

~~Consolidated Statements of Income~~Equity for the Three and Nine Months Ended September 30, 2019 and 2018 ~~and 2017 (unaudited)~~(Unaudited)	4

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

Notes to Consolidated Financial Statements ~~of Comprehensive Income for the Three~~ (Unaudited)~~and Nine Months Ended September 30, 2018 and 2017 (unaudited)~~		7

~~Consolidated Statements of Changes in Shareholders’ Equity for the~~ ~~Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)~~		8

~~Consolidated Statements of Cash Flows for the~~ ~~Nine Months Ended September 30, 2018 and 2017 (unaudited)~~		9

~~Notes to Consolidated Financial Statements (unaudited)~~		10

Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.		60

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.		~~102~~93

Item 4. Controls and ~~Procedures~~Procedures.		~~102~~94

Part II - Other Information

~~Part II. Other Information~~Item 1. Legal Proceedings.		~~103~~95

Item ~~1. Legal Proceedings~~1A. Risk Factors.		~~103~~95

~~Item 1A. Risk Factors~~		~~104~~

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.		~~104~~96

Item ~~6. Exhibits~~3. Defaults Upon Senior Securities.		~~105~~96

~~Signatures~~Item 4. Mine Safety Disclosures.		~~106~~96

Item 5. Other Information.	97

~~Exhibit~~Item 6. Index to Exhibits.	98

Signatures	~~107~~99



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



(Dollars in thousands, except per share data)	September 30, 2018			December 31, 2017
	(Unaudited)
Assets
Cash and cash equivalents:
Cash and cash due from banks	$	285,605		$	226,003
Interest-bearing deposits with the Federal Reserve Bank and other banks	379,158			229,988
Total cash and cash equivalents	664,763			455,991
Investment securities:
Carried at fair value	2,736,880			1,963,546
Held-to-maturity, at amortized cost (fair value of $598,197 and $662,906, respectively)	608,367			677,093
Total investment securities	3,345,247			2,640,639
Loans held-for-sale, at fair value	93,736			52,133
Loans	14,796,252			14,155,267
Allowance for loan losses	(104,041		)	(91,887		)
Net loans	14,692,211			14,063,380
Premises and equipment	123,305			126,896
Loan servicing rights, at fair value	72,707			63,841
Goodwill	1,134,568			1,134,568
Other intangible assets	29,981			34,271
Interest receivable and other assets	748,971			709,154
Total assets	$	20,905,489		$	19,280,873
Liabilities
Deposits:
Noninterest-bearing	$	4,015,323		$	3,725,779
Interest-bearing	11,429,529			9,917,024
Total deposits	15,444,852			13,642,803
Collateralized customer deposits	377,471			415,236
Short-term borrowings	1,670,000			2,000,000
Long-term borrowings	430,971			372,882
Interest payable and other liabilities	193,271			181,203
Total liabilities	18,116,565			16,612,124
Shareholders’ equity
Preferred stock, no par value:
Authorized – 2,000,000 shares at 9/30/18 and 12/31/17, none issued	—			—
Common stock, $1.00 par value per share:
Authorized – 135,000,000 shares at 9/30/18 and12/31/17
Issued and outstanding – 71,437,826 shares at 9/30/18 and 71,207,114 shares at 12/31/17	71,438			71,207
Additional paid-in capital	2,207,631			2,203,637
Retained earnings	567,510			419,403
Accumulated other comprehensive loss	(57,655		)	(25,498		)
Total shareholders’ equity	2,788,924			2,668,749
Total liabilities and shareholders’ equity	$	20,905,489		$	19,280,873



(Dollars in thousands)	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2018
Investment securities – carried at fair value:
Government and government-sponsored agencies	$	—	$	254,453	$	—	$	254,453
State and political subdivisions	—		491,909		—		491,909
Residential mortgage-backed securities	—		177,021		—		177,021
Collateralized mortgage obligations	—		1,477,818		—		1,477,818
Corporate bonds	—		287,405		—		287,405
Trust preferred securities	—		48,274		—		48,274
Total investment securities – carried at fair value	—		2,736,880		—		2,736,880
Loans held-for-sale	—		93,736		—		93,736
Loan servicing rights	—		—		72,707		72,707
Derivative assets:
Customer-initiated derivatives	—		21,390		—		21,390
Foreign exchange forwards	—		3		—		3
Forward contracts related to mortgage loans to be delivered for sale	—		760		—		760
Interest rate lock commitments	—		1,081		—		1,081
Power Equity CD	—		1,260		—		1,260
Risk management derivatives	—		21,067		—		21,067
Total derivatives	—		45,561		—		45,561
Total assets at fair value	$	—	$	2,876,177	$	72,707	$	2,948,884
Derivative liabilities:
Customer-initiated derivatives	$	—	$	21,703	$	—	$	21,703
Foreign exchange forwards	—		3		—		3
Power Equity CD	—		1,260		—		1,260
Total derivatives	—		22,966		—		22,966
Total liabilities at fair value	$	—	$	22,966	$	—	$	22,966
December 31, 2017
Investment securities – available-for-sale:
Government and government-sponsored agencies	$	—	$	202,916	$	—	$	202,916
State and political subdivisions	—		345,970		—		345,970
Residential mortgage-backed securities	—		150,131		—		150,131
Collateralized mortgage obligations	—		1,033,845		—		1,033,845
Corporate bonds	—		192,794		—		192,794
Trust preferred securities	—		36,066		—		36,066
Preferred stock	—		1,824		—		1,824
Total investment securities – available-for-sale	—		1,963,546		—		1,963,546
Loans held-for-sale	—		52,133		—		52,133
Loan servicing rights	—		—		63,841		63,841
Derivative assets:
Customer-initiated derivatives	—		9,376		—		9,376
Interest rate lock commitments	—		1,222		—		1,222
Power Equity CD	—		2,184		—		2,184
Risk management derivatives	—		5,899		—		5,899
Total derivatives	—		18,681		—		18,681
Total assets at fair value	$	—	$	2,034,360	$	63,841	$	2,098,201
Derivative liabilities:
Customer-initiated derivatives	$	—	$	10,139	$	—	$	10,139
Forward contracts related to mortgage loans to be delivered for sale	—		34		—		34
Power Equity CD	—		2,184		—		2,184
Total derivatives	—		12,357		—		12,357
Total liabilities at fair value	$	—	$	12,357	$	—	$	12,357



(Dollars in thousands)	Significant Unobservable Inputs (Level 3)
September 30, 2018
Impaired loans	$	73,137
Other real estate and repossessed assets	1,843
Total	$	74,980
December 31, 2017
Impaired loans	$	70,619
Other real estate and repossessed assets	2,899
Total	$	73,518



(Dollars in thousands)	Fair Value at September 30, 2018		Valuation Technique	Significant Unobservable Inputs	Range
Impaired loans	$	73,137	Appraisal of collateral	Discount for type of collateral and age of appraisal	20%-30%
Other real estate and repossessed assets	1,843		Appraisal of property	Discount for type of property and age of appraisal	20%-30%



	Investment Securities Carried at Fair Value
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2018
Debt securities
Government and government-sponsored agencies	$	258,643	$	14	$	4,204	$	254,453
State and political subdivisions	506,277		187		14,555		491,909
Residential mortgage-backed securities	182,983		6		5,968		177,021
Collateralized mortgage obligations	1,517,172		—		39,354		1,477,818
Corporate bonds	293,828		485		6,908		287,405
Trust preferred securities	47,378		1,004		108		48,274
Total	$	2,806,281	$	1,696	$	71,097	$	2,736,880
December 31, 2017
Debt securities
Government and government-sponsored agencies	$	203,099	$	765	$	948	$	202,916
State and political subdivisions	350,088		310		4,428		345,970
Residential mortgage-backed securities	151,752		5		1,626		150,131
Collateralized mortgage obligations	1,042,240		89		8,484		1,033,845
Corporate bonds	193,230		1,156		1,592		192,794
Trust preferred securities	34,848		1,280		62		36,066
Total debt securities available-for-sale	1,975,257		3,605		17,140		1,961,722
Equity securities
Preferred stock	1,389		435		—		1,824
Total equity securities	1,389		435		—		1,824
Total	$	1,976,646	$	4,040	$	17,140	$	1,963,546



(Dollars in thousands)	Originated		Acquired⁽¹⁾		Total Loans
September 30, 2018
Commercial loan portfolio:
Commercial	$	2,951,453	$	768,469	$	3,719,922
Commercial real estate:
Owner-occupied	1,334,588		563,346		1,897,934
Non-owner occupied	1,875,155		864,545		2,739,700
Vacant land	46,463		27,524		73,987
Total commercial real estate	3,256,206		1,455,415		4,711,621
Real estate construction and land development	554,701		67,446		622,147
Subtotal	6,762,360		2,291,330		9,053,690
Consumer loan portfolio:
Residential mortgage	2,285,611		1,106,376		3,391,987
Consumer installment	1,483,540		76,725		1,560,265
Home equity	613,931		176,379		790,310
Subtotal	4,383,082		1,359,480		5,742,562
Total loans⁽²⁾	$	11,145,442	$	3,650,810	$	14,796,252
December 31, 2017
Commercial loan portfolio:
Commercial	$	2,407,606	$	978,036	$	3,385,642
Commercial real estate:
Owner-occupied	1,185,614		627,948		1,813,562
Non-owner occupied	1,518,787		1,087,974		2,606,761
Vacant land	47,024		33,323		80,347
Total commercial real estate	2,751,425		1,749,245		4,500,670
Real estate construction and land development	498,155		76,060		574,215
Subtotal	5,657,186		2,803,341		8,460,527
Consumer loan portfolio:
Residential mortgage	1,967,857		1,284,630		3,252,487
Consumer installment	1,510,540		102,468		1,613,008
Home equity	611,846		217,399		829,245
Subtotal	4,090,243		1,604,497		5,694,740
Total loans⁽²⁾	$	9,747,429	$	4,407,838	$	14,155,267



(Dollars in thousands)	Talmer			Lake Michigan			Monarch			North-western			OAK			Total
Three Months Ended September 30, 2018
Balance at beginning of period	$	616,168		$	80,442		$	20,131		$	49,731		$	14,292		$	780,764
Accretion recognized in interest income	(40,695		)	(5,980		)	(919		)	(4,341		)	(2,338		)	(54,273		)
Net reclassification (to) from nonaccretable difference⁽¹⁾	20,250			3,108			(376		)	(765		)	(1,149		)	21,068
Balance at end of period	$	595,723		$	77,570		$	18,836		$	44,625		$	10,805		$	747,559

Three Months Ended September 30, 2017
Balance at beginning of period	$	801,369		$	121,572		$	24,270		$	71,212		$	19,796		$	1,038,219
Accretion recognized in interest income	(43,816		)	(7,201		)	(1,119		)	(5,263		)	(3,004		)	(60,403		)
Net reclassification (to) from nonaccretable difference⁽¹⁾	11,861			(14,482		)	168			(1,358		)	1,999			(1,812		)
Balance at end of period	$	769,414		$	99,889		$	23,319		$	64,591		$	18,791		$	976,004

Nine Months Ended September 30, 2018
Balance at beginning of period	$	731,353		$	95,124		$	22,496		$	60,814		$	17,110		$	926,897
Accretion recognized in interest income	(125,471		)	(19,040		)	(3,037		)	(13,863		)	(8,323		)	(169,734		)
Net reclassification (to) from nonaccretable difference⁽¹⁾	(10,159		)	1,486			(623		)	(2,326		)	2,018			(9,604		)
Balance at end of period	$	595,723		$	77,570		$	18,836		$	44,625		$	10,805		$	747,559

Nine Months Ended September 30, 2017
Balance at beginning of period	$	798,210		$	121,416		$	27,182		$	69,847		$	23,316		$	1,039,971
Accretion recognized in interest income	(133,478		)	(22,050		)	(3,459		)	(15,222		)	(9,595		)	(183,804		)
Net reclassification (to) from nonaccretable difference⁽¹⁾	104,682			523			(404		)	9,966			5,070			119,837
Balance at end of period	$	769,414		$	99,889		$	23,319		$	64,591		$	18,791		$	976,004



(Dollars in thousands)	Residential Mortgage		Consumer Installment		Home Equity		Total Consumer
September 30, 2018
Originated Loans:
Performing	$	2,276,000	$	1,482,190	$	610,662	$	4,368,852
Nonperforming	9,611		1,350		3,269		14,230
Subtotal	2,285,611		1,483,540		613,931		4,383,082
Acquired Loans	1,106,376		76,725		176,379		1,359,480
Total	$	3,391,987	$	1,560,265	$	790,310	$	5,742,562
December 31, 2017
Originated Loans:
Performing	$	1,959,222	$	1,509,698	$	607,541	$	4,076,461
Nonperforming	8,635		842		4,305		13,782
Subtotal	1,967,857		1,510,540		611,846		4,090,243
Acquired Loans	1,284,630		102,468		217,399		1,604,497
Total	$	3,252,487	$	1,613,008	$	829,245	$	5,694,740



(Dollars in thousands)	September 30, 2018		December 31, 2017
Nonperforming assets
Nonaccrual loans:
Commercial	$	25,328	$	19,691
Commercial real estate:
Owner-occupied	14,936		19,070
Non-owner occupied	8,991		5,270
Vacant land	4,711		5,205
Total commercial real estate	28,638		29,545
Real estate construction and land development	28,477		77
Residential mortgage	9,611		8,635
Consumer installment	1,350		842
Home equity	3,269		4,305
Total nonaccrual loans	96,673		63,095
Other real estate owned and repossessed assets	6,584		8,807
Total nonperforming assets	$	103,257	$	71,902
Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30
Commercial	$	632	$	—
Commercial real estate:
Owner-occupied	47		—
Non-owner occupied	—		13
Total commercial real estate	47		13
Real estate construction and land development	38		—
Home equity	475		1,364
Total accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30	$	1,192	$	1,377



(Dollars in thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans		90 days or more past due and still accruing
September 30, 2018
Originated Portfolio:
Commercial	$	9,280	$	8,770	$	12,855	$	30,905	$	2,920,548	$	2,951,453	$	632
Commercial real estate:
Owner-occupied	8,052		2,440		8,458		18,950		1,315,638		1,334,588		47
Non-owner occupied	1,993		762		2,054		4,809		1,870,346		1,875,155		—
Vacant land	277		1,399		2,460		4,136		42,327		46,463		—
Total commercial real estate	10,322		4,601		12,972		27,895		3,228,311		3,256,206		47
Real estate construction and land development	1,244		13,238		15,277		29,759		524,942		554,701		38
Residential mortgage	3,889		1,576		4,752		10,217		2,275,394		2,285,611		—
Consumer installment	3,555		657		617		4,829		1,478,711		1,483,540		—
Home equity	5,185		1,123		1,704		8,012		605,919		613,931		475
Total	$	33,475	$	29,965	$	48,177	$	111,617	$	11,033,825	$	11,145,442	$	1,192
December 31, 2017
Originated Portfolio:
Commercial	$	13,906	$	3,766	$	9,494	$	27,166	$	2,380,440	$	2,407,606	$	—
Commercial real estate:
Owner-occupied	7,644		1,306		5,027		13,977		1,171,637		1,185,614		—
Non-owner occupied	1,653		228		693		2,574		1,516,213		1,518,787		13
Vacant land	83		28		153		264		46,760		47,024		—
Total commercial real estate	9,380		1,562		5,873		16,815		2,734,610		2,751,425		13
Real estate construction and land development	—		—		—		—		498,155		498,155		—
Residential mortgage	2,795		1,415		858		5,068		1,962,789		1,967,857		—
Consumer installment	3,324		442		226		3,992		1,506,548		1,510,540		—
Home equity	2,319		1,301		2,196		5,816		606,030		611,846		1,364
Total	$	31,724	$	8,486	$	18,647	$	58,857	$	9,688,572	$	9,747,429	$	1,377



(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance
September 30, 2018
Impaired loans with a valuation allowance:
Commercial	$	13,394	$	16,109	$	1,110
Commercial real estate:
Owner-occupied	13,278		15,607		1,281
Non-owner occupied	3,187		4,595		142
Vacant land	2,130		2,130		373
Total commercial real estate	18,595		22,332		1,796
Real estate construction and land development	28,575		28,575		650
Residential mortgage	12,879		12,879		1,146
Consumer installment	1,071		1,071		117
Home equity	3,697		3,697		255
Subtotal	78,211		84,663		5,074
Impaired loans with no related valuation allowance:
Commercial	25,021		26,427		—
Commercial real estate:
Owner-occupied	10,852		11,490		—
Non-owner occupied	12,161		13,099		—
Vacant land	2,859		3,945		—
Total commercial real estate	25,872		28,534		—
Real estate construction and land development	140		207		—
Residential mortgage	7,988		7,988		—
Consumer installment	475		475		—
Home equity	1,743		1,743		—
Subtotal	61,239		65,374		—
Total impaired loans:
Commercial	38,415		42,536		1,110
Commercial real estate:
Owner-occupied	24,130		27,097		1,281
Non-owner occupied	15,348		17,694		142
Vacant land	4,989		6,075		373
Total commercial real estate	44,467		50,866		1,796
Real estate construction and land development	28,715		28,782		650
Residential mortgage	20,867		20,867		1,146
Consumer installment	1,546		1,546		117
Home equity	5,440		5,440		255
Total	$	139,450	$	150,037	$	5,074



	Concession type
(Dollars in thousands)	Principal deferral		Principal reduction		Interest rate		Forbearance agreement		Total number of loans	Pre-modification recorded investment		Post-modification recorded investment
For the three months ended September 30, 2018
Commercial loan portfolio:
Commercial	$	2,104	$	—	$	165	$	1	13	$	2,277	$	2,270
Commercial real estate:
Owner-occupied	438		—		—		—		2	438		438
Non-owner occupied	—		66		—		—		1	69		66
Total commercial real estate	438		66		—		—		3	507		504
Total Commercial	2,542		66		165		1		16	2,784		2,774
Consumer loan portfolio:
Residential mortgage	—		111		108		—		2	220		219
Consumer installment	48		74		44		—		11	172		166
Home equity	91		73		64		—		4	228		228
Total Consumer	139		258		216		—		17	620		613
Total loans	$	2,681	$	324	$	381	$	1	33	$	3,404	$	3,387
For the nine months ended September 30, 2018
Commercial loan portfolio:
Commercial	$	3,747	$	—	$	1,448	$	262	44	$	5,481	$	5,457
Commercial real estate:
Owner-occupied	808		—		888		513		10	2,221		2,209
Non-owner occupied	68		66		—		—		2	143		134
Total commercial real estate	876		66		888		513		12	2,364		2,343
Total Commercial	4,623		66		2,336		775		56	7,845		7,800
Consumer loan portfolio:
Residential mortgage	269		151		147		—		9	577		567
Consumer installment	134		141		82		—		36	372		357
Home equity	357		73		179		—		13	652		609
Total Consumer	760		365		408		—		58	1,601		1,533
Total loans	$	5,383	$	431	$	2,744	$	775	114	$	9,446	$	9,333



(Dollars in thousands)	Accruing TDRs		Nonaccrual TDRs		Total
September 30, 2018
Commercial loan portfolio	$	29,383	$	24,091	$	53,474
Consumer loan portfolio	13,642		3,970		17,612
Total	$	43,025	$	28,061	$	71,086
December 31, 2017
Commercial loan portfolio	$	34,484	$	24,358	$	58,842
Consumer loan portfolio	14,298		4,748		19,046
Total	$	48,782	$	29,106	$	77,888



(Dollars in thousands)	Commercial Loan Portfolio			Consumer Loan Portfolio			Total
Originated Loan Portfolio
Changes in allowance for loan losses for the three months ended September 30, 2018:
Beginning balance	$	72,665		$	27,350		$	100,015
Provision for loan losses	2,064			2,994			5,058
Charge-offs	(1,048		)	(2,680		)	(3,728		)
Recoveries	1,133			593			1,726
Ending balance	$	74,814		$	28,257		$	103,071
Changes in allowance for loan losses for the nine months ended September 30, 2018:
Beginning balance	$	66,133		$	25,754		$	91,887
Provision for loan losses	13,387			7,499			20,886
Charge-offs	(7,532		)	(6,746		)	(14,278		)
Recoveries	2,826			1,750			4,576
Ending balance	$	74,814		$	28,257		$	103,071
Changes in allowance for loan losses for the three months ended September 30, 2017:
Beginning balance	$	57,955		$	25,842		$	83,797
Provision for loan losses	664			4,256			4,920
Charge-offs	(3,792		)	(1,650		)	(5,442		)
Recoveries	1,270			636			1,906
Ending balance	$	56,097		$	29,084		$	85,181
Changes in allowance for loan losses for the nine months ended September 30, 2017:
Beginning balance	$	51,201		$	27,067		$	78,268
Provision for loan losses	9,140			6,060			15,200
Charge-offs	(7,209		)	(6,112		)	(13,321		)
Recoveries	2,965			2,069			5,034
Ending balance	$	56,097		$	29,084		$	85,181



(Dollars in thousands)	Other real estate owned			Repossessed assets
Balance at January 1, 2018	$	8,182		$	625
Transfers based on adoption of ASU 2014-09⁽¹⁾	(189		)	—
Additions ⁽²⁾	5,281			3,504
Net payments received	(190		)	—
Disposals	(5,859		)	(3,563		)
Write-downs	(1,207		)	—
Balance at September 30, 2018	$	6,018		$	566

Balance at January 1, 2017	$	16,812		$	375
Additions ⁽²⁾	5,339			3,633
Net payments received	(582		)	—
Disposals	(10,180		)	(3,469		)
Write-downs	(1,323		)	—
Balance at September 30, 2017	$	10,066		$	539



(Dollars in thousands)	Commercial Real Estate			Mortgage			Total
For the three months ended September 30, 2018
Fair value, beginning of period	$	457		$	69,907		$	70,364
Additions from loans sold with servicing retained	51			2,035			2,086
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off	(28		)	(647		)	(675		)
Changes in estimates of fair value ⁽¹⁾	—			932			932
Fair value, end of period	$	480		$	72,227		$	72,707
For the nine months ended September 30, 2018
Fair value, beginning of period	$	427		$	63,414		$	63,841
Additions from loans sold with servicing retained	139			6,198			6,337
Changes in fair value due to:	0			0
Reductions from pay-offs, pay downs and run-off	(86		)	(2,039		)	(2,125		)
Changes in estimates of fair value ⁽¹⁾	—			4,654			4,654
Fair value, end of period	$	480		$	72,227		$	72,707
Principal balance of loans serviced	$	42,070		$	6,869,131		$	6,911,201
For the three months ended September 30, 2017
Fair value, beginning of period	$	486		$	64,036		$	64,522
Additions from loans sold with servicing retained	—			2,324			2,324
Changes in fair value due to:							0
Reductions from pay-offs, pay downs and run-off	(31		)	(579		)	(610		)
Changes in estimates of fair value⁽¹⁾	—			(4,041		)	(4,041		)
Fair value, end of period	$	455		$	61,740		$	62,195
For the nine months ended September 30, 2017
Fair value, beginning of period	$	344		$	47,741		$	48,085
Transfers in based on new accounting policy election⁽²⁾	—			15,891			15,891
Additions from loans sold with servicing retained	188			6,273			6,461
Changes in fair value due to:
Reductions from pay-offs, pay downs and run-off	(77		)	(1,803		)	(1,880		)
Change in estimates of fair value⁽¹⁾	—			(6,362		)	(6,362		)
Fair value, end of period	$	455		$	61,740		$	62,195
Principal balance of loans serviced	$	41,798		$	7,102,485		$	7,144,283



	Mortgage
As of September 30, 2018
Prepayment speed	0.0 - 25.74%
Weighted average ("WA") discount rate	10.1		%
WA cost to service/per year	$	66
WA ancillary income/per year	$	31
WA float range	2.3		%
As of December 31, 2017
Prepayment speed	0.0 - 38.8%
WA discount rate	10.1		%
WA cost to service/per year	$	66
WA ancillary income/per year	$	31
WA float range	1.6		%



(Dollars in thousands)	Amount of gain (loss) recognized in other comprehensive income		Amount of gain (loss) reclassified from other comprehensive income to interest income or expense
Three Months Ended September 30, 2018
Interest rate swaps designated as cash flow hedges	$	4,111	$	662
Three Months Ended September 30, 2017
Interest rate swaps designated as cash flow hedges	751		(575		)
Nine Months Ended September 30, 2018
Interest rate swaps designated as cash flow hedges	$	16,176	$	1,009
Nine months ended September 30, 2017
Interest rate swaps designated as cash flow hedges	694		(984		)



							Gross amounts not offset in the statements of financial position
(Dollars in thousands)	Gross amounts recognized		Gross amounts offset in the statements of financial condition		Net amounts presented in the statements of financial position		Financial instruments		Collateral (received)/posted			Net Amount
September 30, 2018
Offsetting derivative assets
Derivative assets ⁽¹⁾	$	21,376	$	—	$	21,376	$	—	$	(26,520	)	$	(5,144	)
Offsetting derivative liabilities
Derivative liabilities ⁽¹⁾	21,648		—		21,648		—		5,150			16,498
December 31, 2017
Offsetting derivative assets
Derivative assets ⁽¹⁾	$	15,228	$	—	$	15,228	$	—	$	—		$	15,228
Offsetting derivative liabilities
Derivative liabilities	10,139		—		10,139		—		1,081			9,058



	Non-Vested Stock Options Outstanding						Stock Options Outstanding
	Number of Options		Weighted- Average Exercise Price Per Share		Weighted- Average Grant Date Fair Value Per Share		Number of Options		Weighted- Average Exercise Price Per Share
Outstanding at December 31, 2017	330,870		$	37.97	$	7.09	1,110,918		$	29.56
Exercised	—		—		—		(295,419	)	23.97
Vested	(78,533	)	37.16		6.94		—		—
Forfeited/expired	(14,926	)	37.51		7.03		(14,928	)	37.51
Outstanding at September 30, 2018	237,411		$	38.27	$	7.14	800,571		$	38.27
Exercisable/vested at September 30, 2018							563,160		$	28.61



	Number of Units		Weighted-average grant date fair value per unit
Outstanding at December 31, 2017	380,940		$	41.29
Granted	315,072		54.41
Converted into shares of common stock	(70,459	)	28.96
Forfeited/expired	(15,390	)	47.43
Outstanding at September 30, 2018	610,163		$	49.33



Nonvested restricted stock awards	Number of Awards		Weighted-average acquisition-date fair value
Nonvested at January 1, 2018	83,228		$	46.23
Vested	(41,784	)	46.23
Forfeited	(592	)	46.23
Nonvested at September 30, 2018	40,852		$	46.23



	Actual				Minimum Required for Capital Adequacy Purposes				Minimum Required for Capital Adequacy Purposes Plus Capital Conservation Buffer				Required to be Well Capitalized Under Prompt Corrective Action Regulations
(Dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
September 30, 2018
Total Capital to Risk-Weighted Assets
Corporation	$	1,792,952	11.7	%	$	1,224,203	8.0	%	$	1,511,126	9.9	%	N/A		N/A
Chemical Bank	1,766,477		11.6		1,221,170		8.0		1,507,382		9.9		$	1,526,463	10.0	%
Tier 1 Capital to Risk-Weighted Assets
Corporation	1,665,786		10.9		918,153		6.0		1,208,901		7.9		N/A		N/A
Chemical Bank	1,655,164		10.8		915,878		6.0		1,202,089		7.9		1,221,170		8.0
Common Equity Tier 1 Capital to Risk-Weighted Assets
Corporation	1,665,786		10.9		688,614		4.5		975,537		6.4		N/A		N/A
Chemical Bank	1,655,164		10.8		686,908		4.5		973,120		6.4		992,201		6.5
Leverage Ratio
Corporation	1,665,786		8.6		771,041		4.0		771,041		4.0		N/A		N/A
Chemical Bank	1,655,164		8.6		769,726		4.0		769,726		4.0		962,157		5.0
December 31, 2017
Total Capital to Risk-Weighted Assets
Corporation	$	1,614,046	11.0	%	$	1,179,076	8.0	%	$	1,363,307	9.3	%	N/A		N/A
Chemical Bank	1,613,087		11.0		1,176,361		8.0		1,360,167		9.3		$	1,470,451	10.0	%
Tier 1 Capital to Risk-Weighted Assets
Corporation	1,498,463		10.2		884,307		6.0		1,068,538		7.3		N/A		N/A
Chemical Bank	1,513,219		10.3		882,271		6.0		1,066,077		7.3		1,176,361		8.0
Common Equity Tier 1 Capital to Risk-Weighted Asset
Corporation	1,498,463		10.2		663,230		4.5		847,461		5.8		N/A		N/A
Chemical Bank	1,513,219		10.3		661,703		4.5		845,509		5.8		955,793		6.5
Leverage Ratio
Corporation	1,498,463		8.3		720,890		4.0		720,890		4.0		N/A		N/A
Chemical Bank	1,513,219		8.4		720,043		4.0		720,043		4.0		900,053		5.0



(Dollars in thousands)	Unrealized gains (losses) on securities available-for-sale, net of tax			Defined Benefit Pension Plans			Unrealized gains (losses) on cash flow hedges, net of tax			Total
For the three months ended September 30, 2018
Beginning balance	$	(41,685	)	$	(19,584	)	$	13,918		$	(47,351	)
Other comprehensive (loss) income before reclassifications	(13,141		)	—			3,248			(9,893		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			112			(523		)	(411		)
Net current period other comprehensive (loss) income	(13,141		)	112			2,725			(10,304		)
Ending balance	$	(54,826	)	$	(19,472	)	$	16,643		$	(57,655	)
For the three months ended September 30, 2017
Beginning balance	$	(8,877	)	$	(25,195	)	$	(57	)	$	(34,129	)
Other comprehensive income before reclassifications	895			7,305			520			8,720
Amounts reclassified from accumulated other comprehensive (loss) income	(1		)	349			231			579
Net current period other comprehensive income	894			7,654			751			9,299
Ending balance	$	(7,983	)	$	(17,541	)	$	694		$	(24,830	)
For the nine months ended September 30, 2018
Beginning balance	$	(10,348	)	$	(19,808	)	$	4,658		$	(25,498	)
Cumulative effect adjustment of change in accounting policy, net of tax impact⁽¹⁾	(344		)	—			3			(341		)
Beginning balance at January 1, 2018	(10,692		)	(19,808		)	4,661			(25,839		)
Other comprehensive (loss) income before reclassifications	(44,132		)	—			12,779			(31,353		)
Amounts reclassified from accumulated other comprehensive (loss) income	(2		)	336			(797		)	(463		)
Net current period other comprehensive (loss) income	(44,134		)	336			11,982			(31,816		)
Ending balance	$	(54,826	)	$	(19,472	)	$	16,643		$	(57,655	)
For the nine months ended September 30, 2017
Beginning balance	$	(14,142	)	$	(25,894	)	$	—		$	(40,036	)
Other comprehensive income before reclassifications	6,268			7,305			54			13,627
Amounts reclassified from accumulated other comprehensive (loss) income	(109		)	1,048			640			1,579
Net current period other comprehensive income	6,159			8,353			694			15,206
Ending balance	$	(7,983	)	$	(17,541	)	$	694		$	(24,830	)



(Dollars in thousands)	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)												Affected Line Item in the Income Statement
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Gains on available-for-sale securities	$	—		$	1		$	3		$	168		Net gain on sale of investment securities (noninterest income)
	—			—			(1		)	(59		)	Income tax expense
	$	—		$	1		$	2		$	109		Net Income
Amortization of defined benefit pension plan items	$	142		$	537		$	426		$	1,613		Salaries, wages and employee benefits (operating expenses)
	(30		)	(188		)	(90		)	(565		)	Income tax benefit
	$	112		$	349		336			$	1,048		Net Loss
Gains and losses on cash flow hedges	$	(662	)	$	575		$	(1,009	)	$	984		Interest on short-term borrowings (interest expense)
	139			(344		)	212			(344		)	Income tax expense (benefit)
	$	(523	)	$	231		$	(797	)	$	640		Net (Income)/Loss



(Dollars in thousands, except per share data)	September 30, 2018			June 30, 2018			December 31, 2017			September 30, 2017
Tangible Book Value
Shareholders' equity, as reported	$	2,788,924		$	2,750,999		$	2,668,749		$	2,673,089
Goodwill, CDI and noncompete agreements, net of tax	(1,155,083		)	(1,156,307		)	(1,158,738		)	(1,153,576		)
Tangible shareholders' equity	$	1,633,841		$	1,594,692		$	1,510,011		$	1,519,513
Common shares outstanding	71,438			71,418			71,207			71,152
Book value per share (shareholders' equity, as reported, divided by common shares outstanding)	$	39.04		$	38.52		$	37.48		$	37.57
Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)	$	22.87		$	22.33		$	21.21		$	21.36
Tangible Shareholders' Equity to Tangible Assets
Total assets, as reported	$20,905,489			$	20,282,603		$	19,280,873		$	19,354,308
Goodwill, CDI and noncompete agreements, net of tax	(1,155,083		)	(1,156,307		)	(1,158,738		)	(1,153,576		)
Tangible assets	$19,750,406			$	19,126,296		$	18,122,135		$	18,200,732
Shareholders' equity to total assets	13.3		%	13.6		%	13.8		%	13.8		%
Tangible shareholders' equity to tangible assets	8.3		%	8.3		%	8.3		%	8.3		%



	Maturity as of September 30, 2018⁽¹⁾
	Within One Year				After One but Within Five Years				After Five but Within Ten Years				After Ten Years				Total Carrying Value⁽²⁾				Total Fair Value
(Dollars in thousands)	Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Total Fair Value
Carried at fair value:
Government and government-sponsored agencies	$	31,136	2.94	%	$	102,527	2.86	%	$	77,152	2.83	%	$	43,638	2.90	%	$	254,453	2.87	%	$	254,453
State and political subdivisions	19,345		1.99		44,994		1.76		138,338		2.23		289,232		3.65		491,909		3.01		491,909
Residential mortgage-backed securities	21,085		2.78		69,787		2.84		49,507		2.90		36,642		3.05		177,021		2.89		177,021
Collateralized mortgage obligations	192,869		2.97		614,836		3.03		425,774		3.09		244,339		2.97		1,477,818		3.03		1,477,818
Corporate bonds	20,353		1.85		45,697		2.71		221,355		3.79		—		—		287,405		3.48		287,405
Trust preferred securities	—		—		—		—		46,781		4.08		1,493		2.06		48,274		4.02		48,274
Total debt securities available-for-sale	$	284,788	2.81	%	$	877,841	2.91	%	$	958,907	3.15	%	$	615,344	3.29	%	$	2,736,880	3.07	%	$	2,736,880
Held-to-Maturity:
State and political subdivisions	$	60,438	3.35	%	$	219,410	3.17	%	$	156,757	3.33	%	$	171,262	3.07	%	$	607,867	3.20	%	$	597,747
Trust preferred securities	—		—		—		—		—		—		500		5.25		500		5.25		450
Total investment securities held-to-maturity	$	60,438	3.35	%	$	219,410	3.17	%	$	156,757	3.33	%	$	171,762	3.08	%	$	608,367	3.20	%	$	598,197
Total investment securities	$	345,226	2.90	%	$	1,097,251	2.96	%	$	1,115,664	3.17	%	$	787,106	3.24	%	$	3,345,247	3.09	%	$	3,335,077



	Maturity as of December 31, 2017⁽¹⁾
	Within One Year				After One but Within Five Years				After Five but Within Ten Years				After Ten Years				Total Carrying Value⁽²⁾				Total Fair Value
(Dollars in thousands)	Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Amount		Yield⁽³⁾		Total Fair Value
Available-for-Sale:
Government and government-sponsored agencies	$	30,241	2.29	%	$	81,106	2.39	%	$	61,461	2.43	%	$	30,108	2.43	%	$	202,916	2.39	%	$	202,916
State and political subdivisions	9,219		2.55		60,691		2.14		115,623		2.63		160,437		3.70		345,970		3.04		345,970
Residential mortgage-backed securities	21,922		2.44		66,510		2.46		38,594		2.52		23,105		2.58		150,131		2.49		150,131
Collateralized mortgage obligations	223,295		2.65		500,467		2.61		231,658		2.74		78,425		2.98		1,033,845		2.68		1,033,845
Corporate bonds	13,968		1.73		37,308		2.01		141,518		3.68		—		—		192,794		3.22		192,794
Trust preferred securities	—		—		—		—		22,967		3.62		13,099		2.93		36,066		3.37		36,066
Total debt securities available-for-sale	$	298,645	2.55	%	$	746,082	2.50	%	$	611,821	2.92	%	$	305,174	3.27	%	$	1,961,722	2.76	%	$	1,961,722
Held-to-Maturity:
State and political subdivisions	$	89,359	2.33	%	$	237,113	3.12	%	$	152,299	3.92	%	$	197,822	3.64	%	$	676,593	3.35	%	$	662,516
Trust preferred securities	—		—		—		—		—		—		500		4.75		500		4.75		390
Total investment securities held-to-maturity	$	89,359	2.33	%	$	237,113	3.12	%	$	152,299	3.92	%	$	198,322	3.64	%	$	677,093	3.35	%	$	662,906
Total investment securities	$	388,004	2.50	%	$	983,195	2.65	%	$	764,120	3.12	%	$	503,496	3.42	%	$	2,638,815	2.92	%	$	2,624,628



	September 30, 2018
	Due In
(Dollars in thousands)	1 Year or Less			1 to 5 Years			Over 5 Years			Total
Loan maturities:
Commercial	$	1,133,341		$	2,044,299		$	542,282		$	3,719,922
Commercial real estate:
Owner-occupied	217,357			1,103,714			576,863			1,897,934
Non-owner occupied	353,941			1,468,797			916,962			2,739,700
Vacant land	23,452			33,913			16,622			73,987
Total commercial real estate	594,750			2,606,424			1,510,447			4,711,621
Real estate construction and land development	161,028			296,946			164,173			622,147
Total	$	1,889,119		$	4,947,669		$	2,216,902		$	9,053,690
Percent of total	20.9		%	54.6		%	24.5		%	100.0		%
Interest sensitivity of above loans:
Fixed interest rates	$	618,270		$	3,279,529		$	920,205		$	4,818,004
Variable interest rates	1,270,849			1,668,140			1,296,697			4,235,686
Total	$	1,889,119		$	4,947,669		$	2,216,902		$	9,053,690