HUNTINGTON BANCSHARES INC/MD Depositary Shares (each representing a 1/40th interest in a share of 5.875% Series C Non-Cumulative, perpetual preferred stock) Depositary Shares (each representing a 1/40th interest in a share of 6.250% Series D Non- Cumulative, perpetual preferred stock) false 0000049196 0000049196 2021-02-02 2021-02-02 0000049196 us-gaap:SeriesCPreferredStockMember 2021-02-02 2021-02-02 0000049196 us-gaap:SeriesDPreferredStockMember 2021-02-02 2021-02-02 0000049196 us-gaap:CommonStockMember 2021-02-02 2021-02-02

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) February 2, 2021

 

 

 

LOGO

Huntington Bancshares Incorporated

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   1-34073   31-0724920
(State or other jurisdiction of
incorporation or organization)
  (Commission
File Number)
  (I.R.S. Employer
Identification No.)

Registrant’s address: 41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number, including area code: (614) 480-2265

Not Applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of class

 

Trading

Symbol(s)

 

Name of exchange

on which registered

Depositary Shares (each representing a 1/40th interest in a share of 5.875% Series C Non-Cumulative, perpetual preferred stock)   HBANN   NASDAQ
Depositary Shares (each representing a 1/40th interest in a share of 6.250% Series D Non- Cumulative, perpetual preferred stock)   HBANO   NASDAQ
Common Stock-Par Value $0.01 per Share   HBAN   NASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).

Emerging growth company  ☐

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

 

 

 


Item 8.01.

Other Events

As previously announced, on December 13, 2020, Huntington Bancshares Incorporated (“Huntington”) and TCF Financial Corporation (“TCF”) issued a joint press release announcing the execution of the Agreement and Plan of Merger, dated as of December 13, 2020, by and between Huntington and TCF pursuant to which, upon the terms and subject to the conditions set forth therein, TCF will merge with and into Huntington, with Huntington continuing as the surviving entity (the “Merger”).

Huntington is filing: (i) as Exhibit 99.1 to this Current Report on Form 8-K, TCF’s audited consolidated financial statements as of December 31, 2019 and 2018 and for each of the fiscal years ended December 31, 2019, 2018 and 2017; (ii) as Exhibit 99.2, TCF’s interim unaudited consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019; (iii) as Exhibit 99.3, the unaudited pro forma condensed combined financial statements of Huntington and TCF, including (a) the unaudited pro forma condensed combined consolidated statement of income of Huntington and TCF for the nine months ended September 30, 2020, giving effect to the Merger as if it had occurred on January 1, 2019, and the unaudited pro forma condensed combined consolidated balance sheet of Huntington and TCF as of September 30, 2020, giving effect to the Merger as if it had occurred on September 30, 2020, and (b) for the year ended December 31, 2019, the unaudited pro forma condensed combined consolidated statement of income of Huntington and TCF for the year ended December 31, 2019, giving effect to the Merger as if it had occurred on January 1, 2019; and (iv) as Exhibit 23.1, the consent of KPMG LLP, independent registered public accounting firm of TCF.

This Current Report on Form 8-K does not modify or update the consolidated financial statements of Huntington included in Huntington’s Annual Report on Form 10-K for the year ended December 31, 2019, nor does it reflect any subsequent information or events. The information referenced in items (i)–(ii) above was previously disclosed by TCF in its reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This communication may contain certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements about the benefits of the proposed transaction, the plans, objectives, expectations and intentions of Huntington and TCF, the expected timing of completion of the transaction, and other statements that are not historical facts. Such statements are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; movements in interest rates; reform of LIBOR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services including those implementing our “Fair Play” banking philosophy; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement between Huntington and TCF; the outcome of any legal proceedings that may be instituted against Huntington or TCF; delays in completing the transaction; the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected


benefits of the transaction); the failure to obtain shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all; the possibility that the anticipated benefits of the transaction 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 and competitive factors in the areas where Huntington and TCF do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; the ability to complete the transaction and integration of Huntington and TCF successfully; the dilution caused by Huntington’s issuance of additional shares of its capital stock in connection with the transaction; and other factors that may affect the future results of Huntington and TCF. Additional factors that could cause results to differ materially from those described above can be found in Huntington’s Annual Report on Form 10-K for the year ended December 31, 2019 and in its subsequent Quarterly Reports on Form 10-Q, including for the quarter ended September 30, 2020, each of which is on file with the SEC and available in the “Investor Relations” section of Huntington’s website, http://www.huntington.com, under the heading “Publications and Filings” and in other documents Huntington files with the SEC, and in TCF’s Annual Report on Form 10-K for the year ended December 31, 2019 and in its subsequent Quarterly Reports on Form 10-Q, including for the quarter ended September 30, 2020, each of which is on file with the SEC and available on TCF’s investor relations website, ir.tcfbank.com, under the heading “Financial Information” and in other documents TCF files with the SEC.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. Neither Huntington nor TCF assumes any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

IMPORTANT ADDITIONAL INFORMATION

In connection with the proposed transaction, on January 28, 2021, Huntington filed with the SEC a Registration Statement on Form S-4 that includes a Joint Proxy Statement of Huntington and TCF and a Prospectus of Huntington, and Huntington and TCF may file other relevant documents concerning the proposed transaction. The registration statement has not yet become effective. After the registration statement is effective, a definitive joint proxy statement/prospectus will be sent to TCF’s shareholders and Huntington’s shareholders seeking their approval of the proposed transaction. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. INVESTORS AND SHAREHOLDERS OF HUNTINGTON AND SHAREHOLDERS OF TCF ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders will be able to obtain a free copy of the definitive joint proxy statement/prospectus, as well as other filings containing information about Huntington and TCF, without charge, at the SEC’s website (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Huntington Investor Relations, Huntington Bancshares Incorporated, Huntington Center, HC0935, 41 South High Street, Columbus, Ohio 43287, (800) 576-5007 or to TCF Investor Relations, TCF Financial Corporation, 333 W. Fort Street, Suite 1800, Detroit, Michigan 48226, (866) 258-180.

PARTICIPANTS IN THE SOLICITATION

Huntington, TCF, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Huntington and TCF in connection with the proposed transaction under the rules of the SEC. Information regarding Huntington’s directors and executive


officers is available in its definitive proxy statement relating to its 2020 Annual Meeting of Shareholders, which was filed with the SEC on March 12, 2020, and other documents filed by Huntington with the SEC. Information regarding TCF’s directors and executive officers is available in its definitive proxy statement relating to its 2020 Annual Meeting of Shareholders, which was filed with the SEC on March 25, 2020, and other documents filed by TCF with the SEC. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the joint proxy statement/prospectus and other relevant materials filed with the SEC. Free copies of this document may be obtained as described in the preceding paragraph

 

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit

    No.    

  

Description of Exhibit

23.1    Consent of KPMG LLP, independent registered public accounting firm (with respect to TCF Financial Corporation).
99.1    Audited consolidated financial statements of TCF Financial Corporation as of December 31, 2019 and 2018, and for each of the fiscal year ended December 31, 2019, 2018 and 2017.
99.2    Interim unaudited consolidated financial statements of TCF Financial Corporation as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019.
99.3    Unaudited pro forma condensed combined financial statements of Huntington Bancshares Incorporated and TCF Financial Corporation (a) as of and for the nine months ended September 30, 2020 and (b) for the year ended December 31, 2019.
104    Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.


SIGNATURE

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

 

HUNTINGTON BANCSHARES INCORPORATED
By:  

/s/ Jana J. Litsey

  Jana J. Litsey
  General Counsel

Date: February 2, 2021

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

TCF Financial Corporation:

We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-232886), Form S-4 (No. 333-252517) and Form S-8 (Nos. 33-10546, 33-41774, 33-44208, 333-136692, 333-140897, 333-144403, 333-153573, 333-158335, 333-161779, 333-161780, 333-168824, 333-173831, 333-183325, 333-187725, 333-192600, 333-202349, 333-206720, 333-209962, 333-224665 and 333-224666) of Huntington Bancshares Incorporated of our reports dated March 2, 2020, with respect to the consolidated statements of financial condition of TCF Financial Corporation as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports are included in the Form 8-K of Huntington Bancshares Incorporated which is incorporated by reference in the prospectus supplement, and to the reference to our firm under the heading “Experts” in the prospectus supplement.

/s/ KPMG LLP

Detroit, Michigan

February 2, 2021

Exhibit 99.1

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

TCF Financial Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial condition of TCF Financial Corporation and subsidiaries (the Corporation) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2020 expressed an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


Assessment of the fair value measurements of acquired loans and leases and the core deposit intangible in the Merger

As discussed in Note 3 to the consolidated financial statements, on August 1, 2019 (the Merger Date), legacy TCF Financial Corporation (Legacy TCF) merged into Chemical Financial Corporation (Chemical) as legal acquirer and surviving company (the Merger). The merger was accounted for as a business combination using the acquisition method of accounting with Legacy TCF as the accounting acquirer. Accordingly, Legacy TCF acquired loans and leases with a fair value of $15.7 billion and established a core deposit intangible (CDI) with a fair value of $138.2 million. The fair value of acquired loans and leases was based on a discounted cash flow methodology that projected principal and interest payments using key assumptions of probability of default (PD), loss given default (LGD), discount rate, and prepayment rate. The fair value of the CDI was based on an income approach methodology whereby projected net cash flow benefits were derived from estimating costs to carry deposits compared to alternative funding costs, and included key assumptions related to discount rate, deposit interest rates, customer attrition rates, costs of alternative funding, and net maintenance costs.

We identified the assessment of the fair value measurements of acquired loans and leases and the CDI in the Merger as a critical audit matter. These fair value measurements involved a high degree of measurement uncertainty and subjectivity, which required industry knowledge and experience to evaluate the measurements. Specifically, the assessment of these fair value measurements encompassed the evaluation of the methodologies of acquired loans and leases and the CDI, including the key assumptions and the inputs used to develop the key assumptions. The fair value measurements of the loans and leases and the CDI also included an evaluation of the mathematical accuracy of certain calculations.

The following are the primary procedures we performed to address the critical audit matter. Tested certain internal controls over the (1) development of the overall fair value methodologies, (2) determination of the key assumptions, as listed above, (3) evaluating the inputs used to develop key assumptions, (4) calculation of the fair value measurements, and (5) analysis of the fair value measurements results. We evaluated the Corporation’s process to develop the fair value measurements and key assumptions by testing certain inputs used to develop the assumptions and considered the relevance and reliability of such inputs and assumptions. We involved valuation professionals with industry knowledge and experience who assisted in the evaluation of the:

 

   

overall fair value measurement methodologies for compliance with U.S. generally accepted accounting principles,

 

   

key assumptions, as listed above, and inputs used to develop those assumptions, that were used in the fair value measurements,

 

   

development and application of the PD and LGD assumptions used in the loan and leases fair value measurement,

 

   

individual risk ratings for acquired loans and leases, which are used in the selection of the PD assumption, for a selection of relationships within the commercial loan and leases portfolio, and

 

   

mathematical accuracy of certain calculations within the fair value measurements.

Assessment of the allowance for loan and lease losses related to loans and leases collectively evaluated for impairment

As discussed in Notes 3 and 8 to the consolidated financial statements, the Corporation’s allowance for loan and lease losses related to loans and leases collectively evaluated for impairment (the collective reserve) was $102.2 million of a total allowance of $113.1 million as of December 31, 2019. The Corporation estimated the collective reserve using methodologies that derive historical loss rates based on historical observation periods and loss emergence period assumptions. For the commercial loan and lease portfolio, such historical loss rates also incorporate risk ratings, and for certain commercial loans, the probability of default (PD) and loss given default (LGD). For the consumer loan portfolio, such historical loss rates also incorporate collateral fair values. The collective reserve includes adjustments for certain qualitative factors.


We identified the assessment of the collective reserve as a critical audit matter because it involved significant measurement uncertainty requiring subjective and complex auditor judgment, and knowledge and experience in the industry. Specifically, this assessment encompassed the evaluation of the collective reserve methodologies used to estimate the (1) historical loss rates, and their key inputs and assumptions, including the historical observation periods and loss emergence period assumptions for the commercial loan and lease portfolio and the consumer loan portfolio, risk ratings for the commercial loan and lease portfolio, PD and LGD for certain commercial loans, and collateral fair values for consumer loans; and (2) qualitative factors. The assessment included an evaluation of the mathematical accuracy of the collective reserve calculations. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address the critical audit matter. Tested certain internal controls over the (1) development of the methodologies over the collective reserve and qualitative factors, (2) determination of the key inputs and assumptions used to estimate the historical loss rates, (3) determination of the qualitative factors, (4) calculation of the collective reserve, and (5) analysis of the collective reserve results compared to relevant trends and ratios. We evaluated the relevance and reliability of data, inputs, and assumptions used in the collective reserve. We involved credit risk professionals with industry knowledge and experience who assisted in the evaluation of the:

 

   

collective reserve methodologies, including the key inputs and assumptions, for compliance with U.S. generally accepted accounting principles,

 

   

length of the historical observation period assumptions used in (1) the historical loss rates for the commercial loan and lease portfolio, and the consumer loan portfolio, and (2) the PD and LGD for certain commercial loans,

 

   

methodologies used to develop the loss emergence period assumptions for the commercial loan and lease portfolio and the consumer loan portfolio,

 

   

individual risk ratings for a selection of relationships within the commercial loan and lease portfolio,

 

   

fair value of collateral for consumer loans,

 

   

qualitative factors and the effect of those factors on the collective reserve, and

 

   

mathematical accuracy of the collective reserve calculations for the commercial loan and lease portfolio and the consumer loan portfolio.

We evaluated the collective reserve by comparing current and historical reserve ratios and credit metrics. We also evaluated the results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the collective reserve.

 

/s/ KPMG LLP

We have served as the Corporation’s auditor since 1991.

Detroit, Michigan

March 2, 2020


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per share data)

   At December 31,
2019
    At December 31,
2018
 

ASSETS

    

Cash and cash equivalents:

    

Cash and due from banks

   $ 491,787     $ 279,267  

Interest-bearing deposits with other banks

     736,584       307,790  
  

 

 

   

 

 

 

Total cash and cash equivalents

     1,228,371       587,057  

Federal Home Loan Bank and Federal Reserve Bank stocks, at cost

     442,440       91,654  

Investment securities:

    

Available-for-sale, at fair value

     6,720,001       2,470,065  

Held-to-maturity, at amortized cost (fair value of $144,844 and $149,267)

     139,445       148,852  
  

 

 

   

 

 

 

Total investment securities

     6,859,446       2,618,917  

Loans and leases held-for-sale (includes $91,202 and $18,070 at fair value)

     199,786       90,664  

Loans and leases

     34,497,464       19,073,020  

Allowance for loan and lease losses

     (113,052     (157,446
  

 

 

   

 

 

 

Loans and leases, net

     34,384,412       18,915,574  

Premises and equipment, net

     533,138       427,534  

Goodwill

     1,299,878       154,757  

Other intangible assets, net

     168,368       20,496  

Loan servicing rights

     56,313       23  

Other assets

     1,479,401       792,936  
  

 

 

   

 

 

 

Total assets

   $ 46,651,553     $ 23,699,612  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 7,970,590     $ 3,936,155  

Interest-bearing

     26,497,873       14,967,531  
  

 

 

   

 

 

 

Total deposits

     34,468,463       18,903,686  

Short-term borrowings

     2,669,145       —    

Long-term borrowings

     2,354,448       1,449,472  

Other liabilities

     1,432,256       790,194  
  

 

 

   

 

 

 

Total liabilities

     40,924,312       21,143,352  
  

 

 

   

 

 

 

Equity

    

Preferred stock, $0.01 par value

    

Authorized—2,000,000 shares at December 31, 2019 and 30,000,000 shares at December 31, 2018

    

Issued and outstanding—7,000 shares at both December 31, 2019 and December 31, 2018

     169,302       169,302  

Common stock, $1.00 par value at both December 31, 2019 and December 31, 2018

    

Authorized—220,000,000 shares at December 31, 2019 and 142,268,000 shares at December 31, 2018

    

Issued—152,965,571 shares at December 31, 2019 and 88,198,460 shares at December 31, 2018

     152,966       88,198  

Additional paid-in capital

     3,462,080       798,627  

Retained earnings

     1,896,427       1,766,994  

Accumulated other comprehensive income (loss)

     54,277       (33,138

Treasury stock at cost and other (4,909,069 Treasury shares at December 31, 2018)

     (28,037     (252,182
  

 

 

   

 

 

 

Total TCF Financial Corporation shareholders’ equity

     5,707,015       2,537,801  

Non-controlling interest

     20,226       18,459  
  

 

 

   

 

 

 

Total equity

     5,727,241       2,556,260  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 46,651,553     $ 23,699,612  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

 

     Year Ended December 31,  
(Dollars in thousands, except per share data)    2019      2018      2017  

Interest income

        

Interest and fees on loans and leases

   $ 1,430,628      $ 1,082,135      $ 966,928  

Interest on investment securities:

        

Taxable

     106,027        41,406        22,818  

Tax-exempt

     11,651        17,138        14,896  

Interest on loans held-for-sale

     18,599        6,686        16,612  

Interest on other earning assets

     20,356        11,964        10,491  
  

 

 

    

 

 

    

 

 

 

Total interest income

     1,587,261        1,159,329        1,031,745  
  

 

 

    

 

 

    

 

 

 

Interest expense

        

Interest on deposits

     226,157        107,690        66,464  

Interest on borrowings

     72,072        43,144        27,807  
  

 

 

    

 

 

    

 

 

 

Total interest expense

     298,229        150,834        94,271  
  

 

 

    

 

 

    

 

 

 

Net interest income

     1,289,032        1,008,495        937,474  

Provision for credit losses

     65,282        46,768        68,443  
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     1,223,750        961,727        869,031  
  

 

 

    

 

 

    

 

 

 

Noninterest income

        

Leasing revenue

     163,718        172,603        134,460  

Fees and service charges on deposit accounts

     127,860        113,242        115,567  

Card and ATM revenue

     87,221        78,406        75,165  

Net gains on sales of loans and leases

     26,308        33,695        45,318  

Servicing fee revenue

     20,776        27,334        41,347  

Wealth management revenue

     10,413        —          —    

Net gains on investment securities

     7,425        348        237  

Other

     21,811        28,769        23,969  
  

 

 

    

 

 

    

 

 

 

Total noninterest income

     465,532        454,397        436,063  
  

 

 

    

 

 

    

 

 

 

Noninterest expense

        

Compensation and employee benefits

     576,922        502,196        503,618  

Occupancy and equipment

     189,560        165,839        156,913  

Lease financing equipment depreciation

     76,426        73,829        55,901  

Net foreclosed real estate and repossessed assets

     13,523        17,050        17,756  

Merger-related expenses

     171,968        —          —    

Other

     303,716        255,486        325,746  
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

     1,332,115        1,014,400        1,059,934  
  

 

 

    

 

 

    

 

 

 

Income before income tax expense

     357,167        401,724        245,160  

Income tax expense (benefit)

     50,241        86,096        (33,624
  

 

 

    

 

 

    

 

 

 

Income after income tax expense (benefit)

     306,926        315,628        278,784  

Income attributable to non-controlling interest

     11,458        11,270        10,147  
  

 

 

    

 

 

    

 

 

 

Net income attributable to TCF Financial Corporation

     295,468        304,358        268,637  

Preferred stock dividends

     9,975        11,588        19,904  

Impact of preferred stock redemption

     —          3,481        5,779  
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 285,493      $ 289,289      $ 242,954  
  

 

 

    

 

 

    

 

 

 

Earnings per common share

        

Basic

   $ 2.56      $ 3.44      $ 2.83  

Diluted

     2.55        3.43        2.83  

Weighted-average common shares outstanding

        

Basic

     111,604,094        84,133,983        85,706,054  

Diluted

     111,818,365        84,324,686        85,734,575  

See accompanying notes to consolidated financial statements.


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

 

     Year Ended December 31,  
(In thousands)    2019     2018     2017  

Net income attributable to TCF Financial Corporation

   $ 295,468     $ 304,358     $ 268,637  

Other comprehensive income (loss), net of tax:

      

Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips

     84,120       (11,669     16,454  

Net unrealized gains (losses) on net investment hedges

     (5,186     10,450       (2,746

Foreign currency translation adjustment

     8,514       (13,368     4,921  

Recognized postretirement prior service cost

     (33     (34     (29
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     87,415       (14,621     18,600  
  

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 382,883     $ 289,737     $ 287,237  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

 

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

(Dollars in thousands)

  Preferred     Common  

Balance, December 31, 2016

    4,006,900       86,902,632     $ 263,240     $ 86,903     $ 777,583     $ 1,382,901     $ (33,725   $ (49,419   $ 2,427,483     $ 17,162     $ 2,444,645  

Change in accounting principle

    —         —         —           1,319       (1,319     —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2017

    4,006,900       86,902,632       263,240       86,903       778,902       1,381,582       (33,725     (49,419     2,427,483       17,162       2,444,645  

Reclassification of stranded tax effects from AOCI to retained earnings

    —         —         —         —         —         3,392       (3,392     —         —         —         —    

Net income

    —         —         —         —         —         268,637       —         —         268,637       10,147       278,784  

Other comprehensive income (loss), net of tax

    —         —         —         —         —         —         18,600       —         18,600       —         18,600  

Net investment by (distribution to) non-controlling interest

    —         —         —         —         —         —         —         —         —         (9,482     (9,482

Public offering of Series C Preferred Stock

    7,000       —         169,302       —         —         —         —         —         169,302       —         169,302  

Redemption of Series A Preferred Stock

    (6,900     —         (166,721     —         —         (5,779     —         —         (172,500     —         (172,500

Repurchases of 226,848 shares of common stock

    —         —         —         —         —         —         —         (9,163     (9,163     —         (9,163

Dividends on 7.50% Series A Preferred Stock

    —         —         —         —         —         (11,320     —         —         (11,320     —         (11,320

Dividends on 6.45% Series B Preferred Stock

    —         —         —         —         —         (6,450     —         —         (6,450     —         (6,450

Dividends on 5.70% Series C Preferred Stock

    —         —         —         —         —         (2,134     —         —         (2,134     —         (2,134

Dividends on common stock of $0.59 per common share

    —         —         —         —         —         (50,617     —         —         (50,617     —         (50,617

Common shares purchased by TCF employee benefit plans

    —         701,914       —         702       22,552       —         —         —         23,254       —         23,254  

Stock compensation plans, net of tax

    —         (130,838     —         (131     7,796       —         —         —         7,665       —         7,665  

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

    —         —         —         —         (17,785     —         —         17,785       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    —         —         —         —         —         304,358       —         —         304,358       11,270       315,628  

Other comprehensive income (loss), net of tax

    —         —         —         —         —         —         (14,621     —         (14,621     —         (14,621

Net investment by (distribution to) non-controlling interest

    —         —         —         —         —         —         —         —         —         (10,638     (10,638

Redemption of Series B Preferred Stock

    (4,000,000     —         (96,519     —         —         (3,481     —         —         (100,000     —         (100,000

Repurchases of 4,668,722 shares of common stock

    —         —         —         —         —         —         —         (212,929     (212,929     —         (212,929

Dividends on 6.45% Series B Preferred Stock

    —         —         —         —         —         (1,613     —         —         (1,613     —         (1,613

Dividends on 5.70% Series C Preferred Stock

    —         —         —         —         —         (9,975     —         —         (9,975     —         (9,975

Dividends on common stock of $1.18 per common share

    —         —         —         —         —         (99,490     —         —         (99,490     —         (99,490

Common stock warrants exercised

    —         553,279       —         553       (553     —         —         —         —         —         —    

Common shares purchased by TCF employee benefit plans

    —         17,594       —         18       697       —         —         —         715       —         715  

Stock compensation plans, net of tax

    —         153,879       —         153       8,184       —         —         378       8,715       —         8,715  

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

    —         —         —         —         (1,166     —         —         1,166       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity, Continued

 

    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

    —         —         —         —         —         295,468       —         —         295,468       11,458       306,926  

Other comprehensive income (loss), net of tax

    —         —         —         —         —         —         87,415       —         87,415       —         87,415  

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

    —         —         —         —         —         —         —         —         —         (9,691     (9,691

Repurchases of 2,111,725 shares of common stock

    —         (657,817     —         (658     (26,846     —         —         (58,805     (86,309     —         (86,309

Dividends on 5.70% Series C Preferred Stock

    —         —         —         —         —         (9,975     —         —         (9,975     —         (9,975

Dividends on common stock of $1.29 per common share

    —         —         —         —         —         (156,060     —         —         (156,060     —         (156,060

Stock compensation plans, net of tax

    —         (114,750     —         (114     4,474       —         —         15,759       20,119       —         20,119  

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

    —         —         —         —         (1,328     —         —         1,328       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2019

    7,000       152,965,571     $ 169,302     $ 152,966     $ 3,462,080     $ 1,896,427     $ 54,277     $ (28,037   $ 5,707,015     $ 20,226     $ 5,727,241  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

     Year Ended December 31,  
(In thousands)    2019     2018     2017  

Cash flows from operating activities

      

Net income

   $ 306,926     $ 315,628     $ 278,784  

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

      

Provision for credit losses

     65,282       46,768       68,443  

Share-based compensation expense

     28,351       17,824       14,743  

Depreciation and amortization

     308,638       204,778       191,824  

Impairment of goodwill and other intangible assets

     —         —         73,409  

Provision (benefit) for deferred income taxes

     30,410       58,986       (53,729

Net gains on sales of assets

     (66,298     (39,881     (51,965

Proceeds from sales of loans and leases held-for-sale

     966,352       372,354       280,640  

Originations of loans and leases held-for-sale, net of repayments

     (835,047     (375,622     (430,121

Impairment of loan servicing rights

     3,882       —         —    

Net change in other assets

     (263,351     (35,154     (108,700

Net change in other liabilities

     162,533       39,898       17,826  

Other, net

     (65,921     (41,949     (36,196
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     641,757       563,630       244,958  
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Proceeds from sales of investment securities available-for-sale

     1,986,386       254,146       —    

Proceeds from maturities of and principal collected on investment securities available-for-sale

     735,861       169,622       116,358  

Purchases of investment securities available-for-sale

     (2,806,598     (1,230,430     (353,557

Proceeds from maturities of and principal collected on investment securities held-to-maturity

     17,632       15,407       21,186  

Purchases of investment securities held-to-maturity

     (6,844     (2,188     (1,051

Redemption of Federal Home Loan Bank stock

     256,021       269,002       246,002  

Purchases of Federal Home Loan Bank stock

     (370,000     (278,000     (254,000

Proceeds from sales of loans and leases

     1,985,093       903,606       1,618,791  

Loan and lease originations and purchases, net of principal collected

     (2,037,489     (957,672     (2,726,967

Proceeds from sales of other assets

     113,771       88,942       63,875  

Purchases of premises and equipment and lease equipment

     (154,540     (155,664     (168,272

Net cash acquired (paid) in business combinations

     975,014       —         (8,120

Other, net

     (27,431     20,935       26,103  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     666,876       (902,294     (1,419,652
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Net change in deposits

     (901,522     549,157       1,094,612  

Net change in short-term borrowings

     45,584       160       (4,747

Proceeds from long-term borrowings

     5,957,492       9,380,950       9,990,967  

Payments on long-term borrowings

     (5,499,669     (9,182,536     (9,816,286

Payments on liabilities related to acquisition and portfolio purchase

     (1,000     (2,000     (3,000

Redemption of Series B preferred stock

     —         (100,000     —    

Net proceeds from public offering of Series C preferred stock

     —         —         169,302  

Redemption of Series A preferred stock

     —         —         (172,500

Repurchases of common stock

     (86,309     (212,929     (9,163

Common shares sold to TCF employee benefit plans

     —         715       23,254  

Dividends paid on preferred stock

     (9,975     (11,588     (19,904

Dividends paid on common stock

     (156,060     (99,490     (50,617

Exercise of stock options

     29       (997     (57

Payments related to tax-withholding upon conversion of share-based awards

     (6,198     (6,865     (5,506

Net investment by (distribution to) non-controlling interest

     (9,691     (10,638     (9,482
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (667,319     303,939       1,186,873  
  

 

 

   

 

 

   

 

 

 

Net change in cash and due from banks

     641,314       (34,725     12,179  

Cash and cash equivalents at beginning of period

     587,057       621,782       609,603  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,228,371     $ 587,057     $ 621,782  
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information

      

Cash paid (received) for:

      

Interest on deposits and borrowings

   $ 269,474     $ 139,026     $ 86,411  

Income taxes, net

     12,177       (26,308     62,115  

Noncash activities:

      

Transfer of loans and leases to other assets

     88,716       105,247       100,608  

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

     2,184,134       848,941       1,320,210  

See accompanying notes to consolidated financial statements.


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1. Basis of Presentation

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 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 the “Corporation”), is a financial holding company, headquartered in Detroit, Michigan. TCF Bank has its main office in Sioux Falls, South Dakota. References herein to “TCF Financial” refer to TCF Financial Corporation on an unconsolidated basis.

The Merger was accounted for as a reverse merger using the acquisition method of accounting, therefore, Legacy TCF was deemed the acquirer for financial reporting purposes, 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 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 restated to reflect the equivalent number of shares issued in the Merger as the Merger was treated as a reverse 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 bank branches primarily located in Michigan, Illinois and Minnesota with additional locations in Arizona, Colorado, Ohio, South Dakota and Wisconsin (TCF’s “primary banking markets”). Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer and commercial banking, trust and wealth management, and specialty leasing and lending products and services to consumers, small businesses and commercial customers.

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

In connection with the Merger, effective August 1, 2019, the Corporation renamed its Wholesale Banking segment to Commercial Banking to align with the way the Corporation is now managed. In addition, activity that was related to small business banking and private banking were moved from the Commercial Banking segment to the Consumer Banking segment. The Merger did not have any impact on Legacy TCF goodwill balances. The revised presentation of previously reported segment data has been applied retroactively for all periods presented in these financial statements. See “Note 25. Reportable Segments” for further information.


Note 2. Merger

As described in Note 1. Basis of Presentation, on August 1, 2019, the Corporation completed the 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 to TCF Financial Corporation. As of the 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 New York Stock Exchange (the “NYSE”), ceased trading on, and 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 one 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 1/1000th 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, therefore, Legacy TCF was deemed the acquirer for financial reporting purposes even though Chemical was the legal acquirer. As a result, the historical financial statements of Legacy TCF became the historical financial statements of the combined company. In addition, the assets acquired, including the intangible assets identified, and assumed liabilities of Chemical as of the Merger Date, have been 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 nature and subject to change.

As the legal acquirer, Chemical (now TCF Financial 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.

 

(Dollars in thousands)

   TCF Financial Ownership and Market Value  
     Number of
Chemical
Outstanding
Shares
     Percentage
Ownership
    Market Value
at $42.04
Chemical
Share Price
 

Legacy TCF shareholders

     81,920,494        53.38   $ 3,443,938  

Chemical shareholders

     71,558,755        46.62       3,008,330  
  

 

 

    

 

 

  &nnbsp;

 

 

 

Total

     153,479,249        100.00     $ 6,452,268  
  

 

 

    

 

 

   

 

 

 


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):

 

     Hypothetical Legacy TCF Ownership  
     Number of Legacy TCF
Outstanding Shares
     Percentage Ownership  

Legacy TCF shareholders

     161,229,078        53.38

Chemical shareholders

     140,835,967        46.62  
  

 

 

    

 

 

 

Total

     302,065,045        100.00  
  

 

 

    

 

 

 

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.

 

(Dollars 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  
  

 

 

 


The following table provides the purchase price allocation as of the Merger Date and the assets acquired and liabilities assumed at their estimated fair value as of the Merger Date as recorded by the Corporation. We recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates were considered preliminary as of September 30, 2019, 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. During the fourth quarter of 2019, we obtained additional information and evidence on certain acquired assets and assumed liabilities and adjusted the estimated fair value accordingly. We anticipate finalizing all valuations and recording final adjustments during the first quarter of 2020. These adjustments include: (i) changes in the estimated fair value of loans and leases acquired, (ii) 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 (iii) 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(1):

  

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

     15,730,605  

Premises and equipment

     140,219  

Loan servicing rights

     59,567  

Other intangible assets

     159,532  

Net deferred tax asset(2)

     61,647  

Other assets

     552,432  
  

 

 

 

Total assets acquired

     21,716,868  

Fair value of liabilities assumed(1):

  

Deposits

     16,418,215  

Short-term borrowings

     2,629,426  

Long-term borrowings

     442,323  

Other liabilities

     353,469  
  

 

 

 

Total liabilities assumed

     19,843,433  

Fair value of net identifiable assets

     1,873,435  
  

 

 

 

Goodwill resulting from Merger(1)

   $ 1,145,121  
  

 

 

 

 

(1)

All amounts were previously reported in the Corporation’s Quarterly Report on Form 10-Q for the three- and nine-month periods ended September 30, 2019, with the exception of the following adjustments to fair value based on additional information obtained in the the fourth quarter of 2019: (i) loans and leases ($4.4 million increase), (ii) other intangible assets ($42.0 million decrease), (iii) net deferred tax asset ($12.3 million increase), (iv) other assets ($1.4 million decrease), (v) deposits ($196 thousand increase), (vi) other liabilities ($7.9 million increase) and (vii) goodwill resulting from Merger ($34.8 million increase).

(2)

Net deferred tax asset includes acquisition-related fair value adjustments, loss and tax credit carry forwards, and deferred tax impacts of loan servicing rights and core deposit and customer intangibles.

As described in more detail in Note 3. Summary of Significant Accounting Policies below, 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 loan and lease losses. The acquired loans and leases 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 and leases, also referred to as purchased loans and leases. 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.


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

 

(In thousands)

      

PCI loans:

  

Contractually required payments receivable

   $ 413,176  

Nonaccretable difference

     (63,014
  

 

 

 

Expected cash flows

     350,162  

Accretable yield

     38,479  
  

 

 

 

Fair value of PCI loans

   $ 311,683  

Purchased nonimpaired loans and leases:

  

Unpaid principal balance

   $ 15,636,020  

Fair value discount

     (217,098
  

 

 

 

Fair value at acquisition

     15,418,922  
  

 

 

 

Total fair value at acquisition

   $ 15,730,605  
  

 

 

 

Supplemental disclosures of cash flow information related to investing and financing activities regarding the Merger are as follows for the year ended December 31, 2019:

 

(In thousands)

      

Business combination

  

Fair value of tangible assets acquired

   $ 21,497,769  

Goodwill, loan servicing rights and other identifiable intangible assets acquired

     1,364,220  

Liabilities assumed

     19,843,433  

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 $138.2 million and $21.3 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. Of the $1.1 billion, $522.0 million was attributable to Consumer Banking and $623.1 million was attributable to Commercial Banking. The goodwill recorded is not deductible for income tax purposes.


Pro Forma Combined Results of Operations (Unaudited) 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, 2017 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (amortization of premium) associated with the fair value adjustments to acquired loans and leases, 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, 2017. Merger-related expenses incurred by TCF during the year ended December 31, 2019 are not reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had Legacy TCF merged with Chemical at the beginning of 2017. Anticipated cost savings that have not yet been realized are also not reflected in the pro forma amounts for the years ended December 31, 2019, 2018 and 2017.

 

     Year Ended December 31,  

(In thousands, except per share data)

   2019      2018      2017  

Net interest income and other noninterest income

   $ 2,225,244      $ 2,228,154      $ 2,086,745  

Net income

     587,335        590,594        432,128  

Net income available to common shareholders

     577,360        575,525        406,445  

Earnings per share:

        

Basic

   $ 3.77      $ 3.70      $ 2.61  

Diluted

     3.75        3.67        2.60  

Note 3. Summary of Significant Accounting Policies

Business Combinations Pursuant to the guidance of ASC Topic 805 (“ASC 805”), the Corporation recognized assets acquired, including identified intangible assets, and the 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 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 circumstances that existed at the acquisition are 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.

In determining the estimated fair value of assets acquired as part of the Merger with Chemical, including the estimated fair value of acquired loans and leases and a core deposit intangible, management relied on a framework of internal controls in place to evaluate the relevance and reliability of key inputs and assumptions used in the fair value and to ensure the mathematical accuracy used to determine an appropriate fair value. Acquired loans and leases were valued using a discounted cash flow methodology with adjustments to contractual cash flows for probability of default, loss given default, discount rates and prepayments rates. Management based the assumptions used on historical data or available market information. The fair value of the core deposit intangible was estimated under the income approach based on discounted net cash flows. This estimate was determined by projecting net cash flow benefits derived from estimating costs to carry deposits compared to alternative funding costs, and includes key assumptions related to deposit interest rates, customer attrition rates, costs of alternative funding, discount rate, and net maintenance costs.

These assumptions were based on both internal data and available market information. Management reviewed the relevance and reliability of key valuation inputs used to support key assumptions. In cases where management utilized a third-party to assist with the valuation, management assessed the qualifications of the third-party and reviewed all outputs provided by the third-party for reasonableness. See “Note 2. Merger” for further information.


Fair Value Measurements Fair value for assets and liabilities measured at fair value on a recurring or nonrecurring basis refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data.

The Corporation may choose to elect the fair value measurement option on eligible financial instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected are reported in earnings at each subsequent reporting date. At December 31, 2019 and 2018, the Corporation had elected the fair value option on certain loans, primarily residential mortgage loans, it originates for the purpose of selling in secondary markets. The Corporation has not elected the fair value option for any other financial assets or liabilities as of December 31, 2019.

Allowance for Loan and Lease Losses The Corporation’s reserving methodology used to determine the appropriate level of the allowance for loan and lease losses is a critical accounting estimate. The allowance for loan and lease losses is maintained at a level believed to be appropriate to provide for probable loan and lease losses incurred in the portfolio as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. As discussed in the Loans and Leases Acquired in a Business Combination paragraph below, acquired loans and leases do not have an allowance for loan and lease losses recorded until there is a deterioration in credit subsequent to acquisition. Loans classified as troubled debt restructuring (“TDR”) loans are considered impaired loans, along with nonaccrual commercial loans and leases and certain consumer loans. The Corporation individually evaluates impairment on all impaired loans and leases. All other loans and leases are evaluated collectively for impairment. A reserve for unfunded credit commitments such as letters of credit, financial guarantees and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition.

Loan impairment on consumer residential mortgage and home equity TDR loans is a key component of the allowance for loan and lease losses. Impairment is generally based on the present value of the expected future cash flows discounted at the loan’s initial effective interest rate, unless the loans are collateral dependent, in which case loan impairment is based on the fair value of the collateral less estimated selling costs. Impairment on other consumer loans is generally based on the fair value of collateral less estimated selling costs.

Commercial TDR and impaired loans and leases are generally measured at the present value of the expected future cash flows discounted at the initial effective interest rate of the loan or lease, unless the loan or lease is collateral dependent, in which case impairment is based on the fair value of collateral less estimated selling costs; however, if payment or satisfaction of the loan or lease is dependent on the operation, rather than the sale of the collateral, the impairment does not include estimated selling costs.

The impairment for all other loans and leases is evaluated collectively by various characteristics. The collective evaluation of incurred losses in these portfolios is based on their historical loss rates multiplied by the respective loss emergence periods. Factors utilized in the determination of the amount of the allowance include historical trends in loss rates, a portfolio’s overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values, economic outlook and prevailing economic conditions. The various quantitative and qualitative factors used in the methodologies are reviewed on a periodic basis.


Loans and leases are charged off to the extent they are deemed to be uncollectible. Charge-offs are utilized in the historical data in calculating the allowance for loan and lease losses. Consumer residential mortgage and home equity loans are charged off to the estimated fair value of the underlying collateral, less estimated selling costs, no later than 150 days past due. Additional review of the fair value, less estimated costs to sell, compared with the recorded value occurs upon foreclosure and additional charge-offs are recorded if necessary. Commercial loans and leases that are considered collateral dependent are charged off to estimated fair value, less estimated selling costs when it becomes probable, based on current information and events, that all principal and interest amounts will not be collectible in accordance with their contractual terms. Consumer installment loans will generally be charged off in full no later than 120 days past due, unless repossession is reasonably assured and in process, in which case the loan would be charged off to the fair value of the collateral, less estimated selling costs. Consumer loans in bankruptcy status may be charged down to the fair value of the collateral, less estimated selling costs, within 60 days past due based on specific criteria. Deposit account overdrafts are reported in other loans. Net losses on uncollectible overdrafts are reported as net charge-offs in the allowance for loan and lease losses within 60 days from the date of overdraft. Loans that are not collateral dependent are charged off when deemed uncollectible based on specific facts and circumstances.

The amount of the allowance for loan and lease losses significantly depends on management’s estimates of key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status and the amounts and timing of future cash flows expected to be received. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees or properties. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known.

Management maintains a framework of controls over the estimation process for the allowance of loan and lease losses, including review of collective reserve methodologies for compliance with GAAP. Management has a quarterly process to review the appropriateness of historical observation periods and loss emergence period assumptions, risk ratings assigned to commercial loans and leases, and discount rate assumptions used to estimate the fair value of consumer real estate. Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends. Management also maintains controls over the information systems, models and spreadsheets used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive loss rates, as well as the probability of default and loss given default used in certain commercial loan models. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance. See “Note 8. Allowance for Loan and Lease Losses and Credit Quality” for further information on the allowance for loan and lease losses.

Federal Home Loan Bank and Federal Reserve Bank Stocks The Corporation is required to hold nonmarketable equity securities, comprised of Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, as a condition of membership. These securities are accounted for at cost, less any impairment. Impairment is assessed based on the ultimate recoverability of the investment. These securities do not have a readily determinable fair value as their ownership is restricted and there is no market for these securities. These securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. FHLB and FRB stock can only be redeemed upon giving notice to each issuing entity and may be subject to restrictions on the amount of stock that can be redeemed at any one time. The nonmarketable equity securities are periodically evaluated for impairment. Management considers these nonmarketable equity securities to be long-term investments. The Corporation recognizes dividend income from its FHLB stock holdings in the period that dividends are declared. See “Note 5. Federal Home Loan Bank and Federal Reserve Bank Stocks” for further information on nonmarketable equity securities.

Investment Securities Held-to-Maturity Investment securities held-to-maturity are carried at cost and adjusted for amortization of premiums or accretion of discounts using a level yield method; however, transfers of investment securities available-for-sale to investment securities held-to-maturity are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of each transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity investment security. Such amounts are then amortized over the remaining life of the transferred investment security as an adjustment of the yield on those securities. The Corporation evaluates investment securities held-to-maturity for other than temporary impairment on a quarterly basis. Declines in value considered other than temporary, if any, would be recorded in noninterest income within net gains on investment securities. See “Note 6. Investment Securities” for further information on investment securities held-to-maturity.


Investment Securities Available-for-Sale Investment securities available-for-sale are carried at fair value with the unrealized gains or losses net of related deferred income taxes reported within accumulated other comprehensive income (loss). The cost of investment securities sold is determined on a specific identification basis and gains or losses on sales of investment securities available-for-sale are recognized on trade dates. Discounts and premiums on investment securities available-for-sale are amortized using a level yield method over the expected life of the security, or to the earliest call date for premiums on investment securities with call features. The Corporation evaluates investment securities available-for-sale for other than temporary impairment on a quarterly basis. Declines in value considered other than temporary, if any, would be recorded in noninterest income within net gains on investment securities. See “Note 6. Investment Securities” for further information on investment securities available-for-sale.

Loans and Leases Held-for-Sale Loans and leases designated as held-for-sale are generally carried at the lower of cost or fair value. Any amount by which cost exceeds fair value is initially recorded as a valuation allowance and subsequently recorded in net gains (losses) on sales of loans and leases when sold. Fair value calculations include the servicing value of loans as well as any accrued interest. From time to time, management identifies and designates, primarily consumer loans held in the loan portfolios, for sale. These loans are transferred to loans and leases held-for-sale at the lower of cost or fair value at the time of transfer net of any associated allowance for loan and lease losses.

Certain residential mortgage loans held-for-sale are recorded at fair value under the elected fair value option as prescribed by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). The Corporation generally sells conforming long-term fixed interest rate mortgage loans it originates in the secondary market. Gains on the sales of these loans are determined using the specific identification method. The Corporation sells residential mortgage loans in the secondary market on servicing retained and servicing released bases. The fair value election allows for a more effective offset of the changes in fair value of residential mortgage loans held-for-sale and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Residential mortgage loans held-for-sale are carried at fair value, with changes in fair value recorded through earnings.

Loans and Leases Held-for-Investment Loans and leases designated as held-for-investment are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases. The net direct fees and costs for sales-type leases are offset against revenues recorded at the commencement of sales-type leases. Discounts and premiums on acquired loans, net direct fees and costs, unearned discounts and finance charges, and unearned lease income are amortized to interest income using methods that approximate a level yield over the estimated remaining lives of the loans and leases. Net direct fees and costs on all lines of credit are amortized on a straight line basis to fees and service charges over the contractual life of the line of credit and adjusted for payoffs. See “Note 7. Loans and Leases” for further information on loans and leases.

Loans and Leases Acquired in a Business Combination The Corporation 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 and acquired loans and leases are evaluated at the acquisition date and classified as either (i) loans and leases purchased without evidence of deteriorated credit quality since origination, 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 purchase 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 an acquired loan should be classified as a PCI loan, the Corporation must make numerous assumptions, interpretations and judgments using internal and third-party credit quality information to determine whether or not it is probable that the Corporation 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. The Corporation estimates 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.


The Corporation does 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.

The Corporation re-estimate the cash flows expected to be collected over the life of PCI loans quarterly. These evaluations require the Corporation to use key assumptions and estimates, similar to the initial estimate of fair value. A decrease in estimated cash flows due to deterioration in credit quality will result in additional reserves recognized in the allowance for loan and lease losses in addition to a transfer from accretable yield to nonaccretable difference.

Purchased and acquired loans and leases outside the scope of ASC 310-30 are accounted for under ASC 310-20, Receivables—Nonrefundable Fees and Other Costs. For purchased and acquired loans and leases, credit discounts representing the expected losses on principal over the life of the loan are a component of the initial fair value. If there is additional credit deterioration after the purchase date additional reserves are recognized in the allowance for loan and lease losses. The net discount or premium is accreted or amortized to interest income over the life of the loan. See “Note 7. Loans and Leases” for further information on loans and leases.

Nonaccrual Loans and Leases 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 and leases, they are well secured and in the process of collection. Delinquent consumer home equity junior lien loans are 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 and leases 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. Income on these loans and leases is recognized on a cash basis when there is sustained repayment performance for nine or 12 consecutive months based on the credit evaluation and the loan is not more than 60 days delinquent.

Generally, when a loan or lease is placed on nonaccrual status, uncollected interest accrued in prior years is charged off against the allowance for loan and lease losses and interest accrued in the current year is reversed against interest income. For nonaccrual leases that have been discounted with third-party financial institutions on a non-recourse basis, the related liability is also placed on nonaccrual status. Interest payments received on loans and leases in nonaccrual status are generally applied to principal unless the remaining principal balance has been determined to be fully collectible, in which case interest income is recognized on a cash basis. See “Note 8. Allowance for Loan and Lease Losses and Credit Quality” for further information on nonaccrual loans and leases.

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


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

Some lease financing contracts include a residual value component, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of residual values involves judgment regarding product and technology changes, customer behavior, shifts in supply and demand and other economic assumptions. The Corporation 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.

The Corporation 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 the Consolidated Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. The Corporation 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 the Corporation 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 on the Consolidated Statements of Income. Operating lease payments received are recognized as lease income on the Consolidated Statements of Income when due and recorded as a component of leasing revenue in noninterest income. An allowance for lease losses is not provided on operating leases. See “Note 7. Loans and Leases” for further information on leases.

As a lessee, the Corporation 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 the Corporation are classified as finance leases, while all others are classified as operating leases. At lease commencement, a lease liability and right-of-use asset are calculated and recognized for both types of leases. The lease liability is equal to the present value of future minimum lease payments. The right-of-use asset is equal to the lease liability, plus any initial direct costs and prepaid lease payments, less any lease incentives received. Operating lease right-of-use assets are recorded in other assets and finance lease right-of-use assets are recorded in premises and equipment, net. The Corporation uses the appropriate term 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 the Corporation 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 Consolidated Statements of Income 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 in noninterest expense. See “Note 12. Operating Lease Right-of-Use Assets and Liabilities” for further information.


Premises and Equipment Premises and equipment, including right-of-use assets for finance leases and leasehold improvements, are carried at cost and are depreciated or amortized on a straight-line basis over the estimated useful lives of owned assets (up to 39 years for buildings, and ranging from three to 15 years for all other depreciable owned assets), over the lease term for right-of-use assets and over the lesser of the estimated useful life of the related asset or the lease term for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Rent expense for leased land with facilities is recognized in occupancy and equipment expense. Rent expense for leases with free rent periods or scheduled rent increases is recognized on a straight-line basis over the lease term. See “Note 9. Premises and Equipment, Net” for further information on premises and equipment.

Goodwill and Other Intangible Assets All assets and liabilities acquired in purchase acquisitions, including other intangibles, are initially recorded at fair value. Goodwill is recorded when the purchase price of an acquisition is greater than the fair value of net assets, including identifiable intangible assets. Goodwill is not amortized, but assessed for impairment annually at the reporting unit level. The Corporation has historically performed its annual assessment as of December 31st. As a result of its Merger, the Corporation has elected to perform its annual test in the fourth quarter utilizing September 30th 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. Interim impairment analysis may be required if events occur or circumstances change that would more-likely-than-not reduce a reporting unit’s fair value below its carrying amount. Other intangible assets are amortized on a straight-line basis or accelerated method over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize their carrying amounts.

When testing for goodwill impairment, the Corporation has the option to perform a qualitative assessment of goodwill. The Corporation may also elect to perform a quantitative test without first performing a qualitative analysis. If the qualitative assessment is performed and the Corporation concludes it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount, a quantitative analysis is performed. Quantitative valuation methodologies primarily include a discounted cash flow analysis in determining the fair value of reporting units. If the fair value is less than the carrying amount, additional analysis is required to measure the amount of impairment. Impairment losses, if any, are recorded as a charge to other noninterest expense and an adjustment to the carrying value of goodwill.

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.

Interest-only Strips The Corporation sells loans with or without interest-only strips to third party financial institutions. For those transactions that achieve sale treatment, the underlying loans are removed from the Consolidated Statements of Financial Condition. The Corporation may receive as part of the sale consideration an interest in the future cash flows of borrower loan payments, known as an interest-only strip. The interest-only strip is recorded at fair value in other assets with the unrealized gains or losses net of deferred income taxes reported within accumulated other comprehensive income (loss), similar to investment securities available-for-sale. The fair value of the interest-only strip represents the present value of future cash flows expected to be received by the Corporation. After initial recording of the interest-only strip, the accretable yield is measured as the difference between the initial investment, or fair value, and the cash flows expected to be collected. The accretable yield is amortized into interest income over the life of the interest-only strip using the effective yield method. The expected cash flows are evaluated quarterly to determine if they have changed from previous projections. Declines in the value of interest-only strips that are considered other than temporary are recorded in other noninterest expense, with amounts previously recorded within accumulated other comprehensive income (loss) being reclassified as appropriate. See “Note 7. Loans and Leases” for further information on interest-only strips.


Other Real Estate Owned and Repossessed and Returned Assets Other real estate owned and repossessed and returned assets is comprised of assets acquired through foreclosure, repossession or returned to the Corporation. These assets are initially recorded at the lower of the loan or lease carrying amount or fair value of the collateral less estimated selling costs at the time of transfer to real estate owned or repossessed and returned assets. The fair value of other real estate owned is based on independent appraisals, real estate brokers’ price opinions or automated valuation methods, less estimated selling costs. The fair value of repossessed and returned assets is based on available pricing guides, auction results or price opinions, less estimated selling costs. Any carrying amount in excess of the fair value less estimated selling costs is charged off to the allowance for loan and lease losses upon transfer. Subsequently, if the fair value of an asset, less the estimated costs to sell, declines to less than the carrying amount of the asset, the shortfall is recognized in the period in which it becomes known and is included in foreclosed real estate and repossessed assets, net expense. Operating expenses of properties and recoveries on sales of other real estate owned are also recorded in noninterest expense within net foreclosed real estate and repossessed assets. Operating revenue from foreclosed property is included in other noninterest income. See “Note 8. Allowance for Loan and Lease Losses and Credit Quality” for further information on other real estate owned and repossessed and returned assets.

Investments in Qualified Affordable Housing Projects, Federal Historic Projects and New Market Tax Credits The Corporation has investments in affordable housing limited liability entities that either operate qualified affordable housing projects or invest in other limited liability entities formed to operate affordable housing projects, which generally accounts for under the proportional amortization method. However, depending on circumstances, the effective yield, equity or cost methods may be utilized. The Corporation also has investments in federal historic projects and new market projects, which are accounted for under the equity method. The amount of the investments, along with any unfunded equity contributions that are unconditional and legally binding, are recorded in other assets on the Consolidated Statements of Financial Condition. A liability for the unfunded equity contributions is recorded in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. The tax credits and amortization of the investments are recorded as a component of income tax expense (benefit). Investments in affordable housing limited liability entities are considered VIEs because the Corporation, as a limited partner, lacks the power to direct the activities that most significantly impact the entities’ economic performance. The Corporation has concluded it is not the primary beneficiary of the investments in affordable housing limited liability entities 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. The Corporation 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 the Corporation’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. See “Note 13. Investments in Qualified Affordable Housing Projects, Federal Historic Projects and New Market Tax Credits” for further information on investments in affordable housing limited liability entities.

Derivative Instruments All derivative instruments are recognized at fair value within other assets and other liabilities. The Corporation’s 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. The Corporation’s policy is to recognize amounts subject to master netting arrangements and collateral arrangements on a net basis in the Consolidated Statements of Financial Condition. The value of derivative instruments will vary over their contractual terms as the related underlying rates fluctuate. The accounting for changes in the fair value of a derivative instrument depends on whether or not the contract has been designated and qualifies as a hedge. To qualify as a hedge, a contract must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a contract to be designated as a hedge, the risk management objective and strategy must be documented at inception. Hedge documentation must also identify the hedging instrument, the asset or liability and type of risk to be hedged and how the effectiveness of the contract is assessed prospectively and retrospectively. To assess effectiveness, the Corporation uses statistical methods such as regression analysis. A contract that has been, and is expected to continue to be effective at offsetting changes in fair values or the net investment, must be assessed and documented at least quarterly. If it is determined that a contract is not highly effective at hedging the designated exposure, hedge accounting is discontinued.

Upon origination of a derivative instrument, the contract is designated either as a hedge of the exposure to changes in the fair value of an asset or liability due to changes in market risk (“fair value hedge”), a hedge of the volatility of an investment in foreign operations driven by changes in foreign currency exchange rates (“net investment hedge”) or is not designated as a hedge.


Fair Value Hedges TCF Bank entered into an interest rate swap agreement related to its contemporaneously issued subordinated debt, which settles through a central clearing house. The swap was designated as a fair value hedge and effectively converts the fixed interest rate to a floating rate based on the three-month London InterBank Offered Rate (“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 on borrowings effective January 1, 2018 and were previously recorded in other noninterest income.

Net Investment Hedges Forward foreign exchange contracts, which generally settle within 34 days, are used to manage the foreign exchange risk associated with the Corporation’s net investment in TCF Commercial Finance Canada, Inc. (“TCFCFC”), a wholly-owned indirect Canadian subsidiary of TCF Bank. Changes in net investment hedges recorded within other comprehensive income (loss) are subsequently reclassified to other 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 The Corporation 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 the Corporation executes with a third party and generally settles through a central clearing house, minimizing the Corporation’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 3 to 10 years.

Portions of loans to commercial banking customers with associated interest rate contracts may be sold or purchased by TCF Bank. In such circumstances, the Corporation often executes risk participation agreements (“RPAs”) directly with the party that owns the remaining portion of the loan. These agreements require the party that has not originated the interest rate contract with the borrower to assume a portion of the risk that the borrower will default on the interest rate contract obligation. As the RPAs do not meet hedge accounting requirements, changes in the fair value of these contracts are recorded in other noninterest income. These contracts have original fixed maturity dates matching the associated interest rate contracts.

Certain of the Corporation’s forward foreign exchange contracts are not designated as hedges and are generally settled within 34 days. Changes in the fair value of these forward foreign exchange contracts are recorded in other noninterest expense.

The Corporation 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 10 months. They are not designated as hedges and accordingly, changes in the valuation of these commitments are recorded in net gains on sales of loans and leases.

Mandatory forward loan sale commitments are accounted for as derivatives and recorded at fair value, with changes in fair value recorded through earnings. The Corporation recognizes revenue associated with the expected future cash flows of servicing loans for loans held-for-sale at the time a forward loan sale commitment is made to originate a held-for-sale loan.

The Corporation 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 time deposit that provides the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Corporation 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 the Consolidated Statements of Financial Condition.


During the second quarter of 2012, the Corporation sold its Visa® Class B stock. In conjunction with the sale, the Corporation and the purchaser entered into a derivative transaction whereby the Corporation may receive or be required to make cash payments whenever the conversion ratio of the Visa Class B stock into Visa Class A stock is adjusted. The fair value of this derivative has been determined using estimated future cash flows using probability weighted scenarios for multiple estimates of Visa’s aggregate exposure to covered litigation matters, which include consideration of amounts funded by Visa into its escrow account for the covered litigation matters. Changes, if any, in the valuation of this swap agreement, which has no determinable maturity date, are recorded in other noninterest expense. See “Note 23. Derivative Instruments” for further information on derivative instruments.

Bank-Owned Life Insurance The Corporation has life insurance policies on certain key officers of TCF Bank. The bank-owned life insurance policies of the Corporation were obtained through its merger with Chemical Bank in August 2019. Bank-owned life insurance is recorded at the cash surrender value, net of surrender charges, and is included within other assets on the Consolidated Statements of Financial Condition and tax-exempt income from the periodic changes in the cash surrender values are recorded as other noninterest income on the Consolidated Statements of Income. The total cash surrender value of the bank owned life insurance policies totaled $167.6 million at December 31, 2019. Bank owned life insurance income was $1.5 million for the year ended December 31, 2019.

Short-term Borrowings Short-term borrowings are comprised of short-term FHLB advances with original scheduled maturities of one year or less, and collateralized customer deposits, which represent funds deposited by customers that are collateralized by investment securities owned by the Corporation, as these deposits are not covered by Federal Deposit Insurance Corporation (“FDIC”) insurance and are reflected as a liability in the accompanying Consolidated Statements of Financial Condition. See “Note 15. Borrowings” for further information.

Long-term Borrowings Long-term borrowings are comprised of subordinated debentures, long-term FHLB advances, discounted lease rentals, and finance lease obligations. See Note 15. Borrowings for further information.

Advertising Costs Advertising costs are expensed as incurred. The Corporation has entered into long-term contracts for sponsorships or naming rights of certain events and buildings. Costs associated with these contracts are generally expensed ratable over the contract term.

Income Taxes The Corporation files consolidated and separate company U.S. federal income tax returns, combined and separate company state income tax returns and foreign income tax returns. Current and deferred tax assets and liabilities are measured based on the provisions of enacted tax law.

Income taxes are accounted for using the asset and liability method. Under this method, current income tax expense represents the estimated liability for the current period and includes income tax expense related to uncertain tax positions. When income and expenses are recognized in different periods for tax purposes than for book purposes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Differences in the tax and book carrying amounts of assets and liabilities can also be generated when the Corporation acquires other businesses or bank branches. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recorded in income tax expense (benefit) in the period in which the enactment date occurs. If current period income tax rates change, the impact on the annual effective income tax rate is applied year to date in the period of enactment.

The determination of current and deferred income taxes is based on analyses of many factors, including interpretation of income tax laws, the evaluation of uncertain tax positions, temporary differences between the tax and financial reporting bases of assets and liabilities, estimates of amounts due or owed, the timing of reversals of temporary differences and current financial accounting standards. Additionally, there can be no assurance that estimates and interpretations used in determining income tax assets or liabilities will not be challenged by taxing authorities. Actual results could differ significantly from the estimates and tax law interpretations used in determining the current and deferred income tax assets and liabilities.


In the preparation of income tax returns, tax positions are taken based on interpretation of income tax laws for which the outcome is uncertain. At each balance sheet date, management reviews and evaluates the status of uncertain tax positions and makes estimates of amounts ultimately due or owed. The benefits of tax positions are recorded in income tax expense (benefit) net of the estimates of ultimate amounts due or owed, including any applicable interest and penalties. Changes in the estimated amounts due or owed may result from closing of the statute of limitations on tax returns, new legislation, clarification of existing legislation through government pronouncements, judicial action and through the examination process. The Corporation’s policy is to record interest and penalties, if any, related to unrecognized tax benefits in income tax expense (benefit). See “Note 16. Income Taxes” for further information on income taxes.

Share-based Compensation The fair value of restricted stock awards, stock options and restricted stock units is determined on the date of grant and amortized to compensation and employee benefits expense, with a corresponding increase to additional paid-in capital, over the longer of the service period or performance period, but in no event beyond an employee’s retirement date or date of employment termination. For performance-based restricted stock or stock units, the Corporation estimates the degree to which performance conditions will be met to determine the number of shares or units that will vest and the related expense. Compensation and employee benefits expense is adjusted in the period such estimates change. Non-forfeitable dividends, if any, paid on shares of restricted stock are recorded to retained earnings for shares that are expected to vest and to compensation and employee benefits expense for shares that are not expected to vest.

Income tax benefits (detriments) related to stock compensation, where the fair value on vesting or exercise of the award is greater than (less than) the grant date value less any proceeds on exercise, are recognized in income tax expense (benefit). See “Note 20. Share-based Compensation” for further information on stock-based compensation.

Earnings Per Common Share The Corporation’s restricted stock awards that pay non-forfeitable common stock dividends meet the criteria of a participating security. Accordingly, earnings per share is calculated using the two-class method under which earnings are allocated to both common shares and participating securities.

All shares of restricted stock are deducted from weighted-average shares outstanding for the computation of basic earnings per common share. Shares of performance-based restricted stock and restricted stock units are included in the calculation of diluted earnings per common share using the treasury stock method at the beginning of the quarter in which the performance goals have been achieved. All other shares of restricted stock, which vest over specified time periods, stock options and warrants are included in the calculation of diluted earnings per common share using the treasury stock method. See “Note 25. Earnings Per Common Share” for further information on earnings per share.

Accumulated Other Comprehensive Income (Loss) Comprehensive income of the Corporation includes net income and adjustments to shareholders’ equity for changes in unrealized gains and losses on investment securities available-for-sale, interest only strips, and net investment hedges, as well as foreign currency translation adjustments and recognized postretirement prior service cost. All items included in comprehensive income are net of income taxes. The Corporation presents “Comprehensive income” as a component in the Consolidated Statements of Equity and the components of other comprehensive income (loss) separately in the Consolidated Statements of Comprehensive Income. See “Note 29. Accumulated Other Comprehensive Income (Loss)” for further information on accumulated other comprehensive income (loss).

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, the Corporation 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 the consolidated financial statements.


Effective January 1, 2019, the Corporation 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. The Corporation’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 the consolidated financial statements.

Effective January 1, 2019, the Corporation 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 the consolidated financial statements.

Effective January 1, 2019, the Corporation 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 the consolidated financial statements.

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


Recently Issued Accounting Pronouncements

In January 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force), which clarifies the interactions between Topic 321, Topic 323 and Topic 815, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The adoption of this ASU will be required beginning with the Corporation’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2021. Early adoption is allowed. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes by removing certain exceptions to the general rules found in Topic 740—Income Taxes. The adoption of this ASU will be required beginning with the Corporation’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2021. Early adoption is allowed. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-08, Compensation-Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements-Share-Based Consideration Payable to a Customer, which requires entities to measure and classify share based payment awards granted to a customer by applying the guidance in Topic 718. The adoption of this ASU will be required beginning with the Corporation’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 the consolidated financial statements.

In November 2018, 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 the Corporation’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 the 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 the Corporation’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 the 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 the Corporation’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 the 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 the Corporation’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 the 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 exposures), 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 adjustments for current conditions and reasonable and supportable forecasts of future economic conditions. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief, which provides an option to irrevocably elect the fair value option in Subtopic 825-10 to certain instruments within the scope of Subtopic 326-20 upon adoption of Topic 326. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarifies that expected recoveries of amounts previously written off or expected to be written off should be included in the estimate of allowance for credit losses for purchased financial assets with credit deterioration, provides certain transition relief for TDR accounting when the discounted cash flow method is used to estimate credit losses, allows entities to elect to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements, and clarifies that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial assets when electing a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of the financial asset and the fair value of collateral securing the financial asset as of the reporting date. The adoption of these ASUs will be reflected using a modified retrospective approach with a cumulative effect adjustment recorded as of January 1, 2020 in the Corporation’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 significant change to industry practice, which the Corporation expects will continue to evolve over time.

The Corporation has established a governance structure to implement these ASUs and has developed a methodology and set of models to be used upon adoption. At December 31, 2019, loan and lease portfolios totaled $34.5 billion with a corresponding allowance for loan and lease losses (“ALLL”) of $113.1 million under current GAAP. Based on parallel runs of the CECL process that the Corporation has performed alongside the current ALLL process, the Corporation estimates that the adoption of the standard will result in an allowance for credit losses (“ACL”) that is larger than the current ALLL levels by $200.0 million to $225.0 million in total for all portfolios. Approximately 20% of the anticipated increase from ALLL to ACL relates to originated loans and leases, with the largest impact on the consumer segment given the longer duration of the portfolios. A significant portion of the anticipated increase from ALLL to ACL is a result of new requirements to record ACL related to acquired loans and leases, regardless of any credit mark recorded. Approximately 80% of the anticipated increase from ALLL to ACL relates to acquired loans and leases, which were recorded at estimated fair value at their respective acquisition dates, the majority of which relate to loans and leases acquired in the Merger. Under current GAAP, credit marks are included in the determination of the fair value adjustments reflected as a discount to the carrying value of the loans, and an ALLL is not recorded on acquired loans and leases until there is evidence of credit deterioration post acquisition. However, upon adoption of CECL an ACL is recorded for all acquired loans and leases based on the lifetime loss concept. Further, for acquired loans and leases that do not meet the definition of purchase credit deteriorated (“PCD”), the credit and interest marks which remain from acquisition accounting as of December 31, 2019 will continue to accrete over the life of loan. For acquired loans that meet the definition of PCI and convert to PCD at adoption, the ACL recorded is recognized through a gross-up that increases the amortized cost basis of loans with a corresponding ACL, and therefore results in little to no impact to the cumulative effect adjustment to retained earnings. The adoption of CECL will also result in an increase in the liability for unfunded commitments of between $10.0 million and $15.0 million. For other assets within the scope of the standard such as debt securities held-to-maturity, trade and other receivables, management expects the impact from the standard to be inconsequential. The Corporation estimates a cumulative tax effected adjustment to record ACL and to increase the unfunded commitment liability results in a reduction to retained earnings of $160.0 million to $175.0 million. Management is finalizing its review of certain asset-specific risk characteristics and of the most recent model run related to acquired loans. Management is also evaluating financial statement and disclosure impacts, as well as determining whether to elect to utilize the three-year phase-in period for regulatory impact of CECL. As the Corporation finalizes the implementation of the standard in the first quarter of 2020, final decisions by management will result in the specific January 1, 2020 ACL impact being established.


The initial increase to the Corporation’s allowance for loan and lease losses and liability for unfunded commitments will be recorded as an adjustment to beginning of the year retained earnings. Post adoption, as loans and leases are added to the portfolio, the Corporation expects higher levels of allowance for credit losses determined by CECL assumptions, resulting in accelerated recognition of provision for credit losses, as compared to historical results.

Note 4. Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and interest-bearing deposits in other banks.

At December 31, 2019 and 2018, TCF Bank was required by Federal Reserve regulations to maintain reserves of $177.0 million and $106.2 million, respectively, in cash on hand or at the Federal Reserve Bank. We maintain 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. We may also retain cash balances for collateral on certain borrowings and derivative contracts. We maintained restricted cash totaling $68.6 million and $38.3 million at December 31, 2019 and 2018, respectively.

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

Investments were as follows:

 

     At December 31,  

(In thousands)

   2019      2018  

Federal Home Loan Bank stock, at cost

   $ 318,473      $ 54,019  

Federal Reserve Bank stock, at cost

     123,967        37,635  
  

 

 

    

 

 

 

Total investments

   $ 442,440      $ 91,654  
  

 

 

    

 

 

 

The investments in FHLB stock are required investments related to the Corporation’s membership in and borrowings from the FHLB of Des Moines, and additional commitments from the FHLB of Indianapolis and Cincinnati. The Corporation’s investments in the FHLB of Des Moines, Indianapolis and Cincinnati 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. We periodically evaluate investments for other than temporary impairment. There was no impairment of these investments in 2019, 2018 and 2017.


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 December 31, 2019

           

Debt securities:

           

Government and government-sponsored enterprises

   $ 235,045      $ 18      $ 678      $ 234,385  

Obligations of states and political subdivisions

     852,096        12,446        687        863,855  

Mortgage-backed securities:

           

Residential agency

     4,492,427        68,797        6,103        4,555,121  

Residential non-agency

     374,046        1,166        616        374,596  

Commercial agency

     645,814        8,639        2,049        652,404  

Commercial non-agency

     39,398        17        205        39,210  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

     5,551,685        78,619        8,973        5,621,331  

Corporate debt and trust preferred securities

     451        —          21        430  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 6,639,277      $ 91,083      $ 10,359      $ 6,720,001  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2018

           

Debt securities:

           

Obligations of states and political subdivisions

   $ 566,304      $ 46      $ 9,479      $ 556,871  

Mortgage-backed securities:

           

Residential agency

     1,845,451        8,026        26,728        1,826,749  

Residential non-agency

     4        —          —          4  

Commercial agency

     85,245        1,196        —          86,441  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

     1,930,700        9,222        26,728        1,913,194  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 2,497,004      $ 9,268      $ 36,207      $ 2,470,065  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Investment Securities Held-to-Maturity  

(In thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

At December 31, 2019

           

Residential agency mortgage-backed securities

   $ 135,769      $ 5,576      $ 177      $ 141,168  

Corporate debt and trust preferred securities

     3,676        —          —          3,676  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 139,445      $ 5,576      $ 177      $ 144,844  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2018

           

Residential 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 length of time the securities were in a continuous loss position were as follows:

 

     At December 31, 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

   $ 226,177      $ 678      $ —        $ —        $ 226,177      $ 678  

Obligations of states and political subdivisions

     60,639        687        —          —          60,639        687  

Mortgage-backed securities:

                 

Residential agency

     667,511        3,586        200,534        2,517        868,045        6,103  

Residential non-agency

     140,403        616        —          —          140,403        616  

Commercial agency

     176,880        2,049        —          —          176,880        2,049  

Commercial non-agency

     25,560        205        —          —          25,560        205  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

     1,010,354        6,456        200,534        2,517        1,210,888        8,973  

Corporate debt and trust preferred securities

     430        21        —          —          430        21  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 1,297,600      $ 7,842      $ 200,534      $ 2,517      $ 1,498,134      $ 10,359  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held-to-maturity

                 

Residential agency mortgage-backed securities

   $ 7,116      $ 72      $ 9,209      $ 105      $ 16,325      $ 177  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 7,116      $ 72      $ 9,209      $ 105      $ 16,325      $ 177  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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 available-for-sale

                 

Debt securities:

                 

Obligations of states and political subdivisions

   $ 3,620      $ —        $ 526,817      $ 9,479      $ 530,437      $ 9,479  

Residential agency mortgage-backed securities

     102,709        184        838,482        26,544        941,191        26,728  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 106,329      $ 184      $ 1,365,299      $ 36,023      $ 1,471,628      $ 36,207  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held-to-maturity

                 

Residential 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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2019 there were 517 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:

 

     Year Ended December 31,  

(In thousands)

   2019      2018      2017  

Gross realized gains

   $ 10,877      $ 1,148      $ —    

Gross realized losses

     3,491        1,021        —    

Recoveries on previously impaired investment securities held-to-maturity

     39        221        237  
  

 

 

    

 

 

    

 

 

 

Net gains on investment securities

   $ 7,425      $ 348      $ 237  
  

 

 

    

 

 

    

 

 

 


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 December 31, 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

   $ 66,124      $ 66,112      $ —        $ —    

Due in 1-5 years

     191,364        192,065        24,464        24,375  

Due in 5-10 years

     547,813        555,523        509,832        503,768  

Due after 10 years

     5,833,976        5,906,301        1,962,708        1,941,922  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 6,639,277      $ 6,720,001      $ 2,497,004      $ 2,470,065  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment Securities Held-to-Maturity

           

Due in 1-5 years

   $ 3,550      $ 3,550      $ 2,400      $ 2,400  

Due in 5-10 years

     58        64        430        432  

Due after 10 years

     135,837        141,230        146,022        146,435  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 139,445      $ 144,844      $ 148,852      $ 149,267  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2019 and 2018, investment securities with a carrying value of $627.0 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:

 

     At December 31,  

(In thousands)

   2019      2018  

Commercial loan and lease portfolio:

     

Commercial and industrial

   $ 11,439,602      $ 6,298,240  

Commercial real estate

     9,136,870        2,830,705  

Lease financing

     2,699,869        2,530,163  
  

 

 

    

 

 

 

Total commercial loan and lease portfolio

     23,276,341        11,659,108  
  

 

 

    

 

 

 

Consumer loan portfolio:

     

Residential mortgage

     6,179,805        2,335,835  

Consumer installment

     1,542,411        2,003,572  

Home equity

     3,498,907        3,074,505  
  

 

 

    

 

 

 

Total consumer loan portfolio

     11,221,123        7,413,912  
  

 

 

    

 

 

 

Total loans and leases(1)

   $ 34,497,464      $ 19,073,020  
  

 

 

    

 

 

 

 

(1)

Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was a net deferred cost of $201.5 million and $1.5 million at December 31, 2019 and 2018, respectively.

Acquired Loans and Leases The Corporation 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 Year Ended December 31,  

(In thousands)

   2019      2018  

Balance of PCI loans, beginning of period

   $ 3,817      $ 11,844  

Accretable Yield

     

Balance, beginning of period

   $ 961      $ 1,051  

Addition attributable to the Merger

     38,479        —    

Accretion recognized in interest income

     (11,453      (215

Net reclassification (to) from nonaccretable difference

     10,091        370  

Payments received

     (10,445      (245
  

 

 

    

 

 

 

Balance, end of period

   $ 27,633      $ 961  
  

 

 

    

 

 

 

Balance of PCI loans, end of period

   $ 246,786      $ 3,817  
  

 

 

    

 

 

 

Leases Effective January 1, 2019, we 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 year ended December 31, 2019.

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

 

(In thousands)

   At December 31,
2019
 

Carrying amount

   $ 2,794,212  

Unguaranteed residual assets

     152,030  

Net direct fees and costs and unearned income

     (246,373
  

 

 

 

Total net investment in direct financing and sales-type leases

   $ 2,699,869  
  

 

 

 

The carrying amount of the sales-type and direct financing leases subject to residual value guarantees was $277.1 million at December 31, 2019.

The components of total lease income were as follows:

 

(In thousands)

   Year Ended
December 31, 2019
 

Interest income—loans and leases:

  

Interest income on net investment in direct financing and sales-type leases

   $ 131,547  

Leasing revenue (noninterest income):

  

Lease income from operating lease payments

     100,975  

Profit (loss) recorded on commencement date on sales-type

     35,694  

Gain (losses) on sales of leased equipment

     27,049  
  

 

 

 

Leasing Revenue

     163,718  
  

 

 

 

Total lease income

   $ 295,265  
  

 

 

 

Lease financing equipment depreciation on equipment leased to others was $76.4 million and the net book value of equipment leased to others and related initial direct costs under operating leases was $289.7 million at December 31, 2019.


Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at December 31, 2019 were as follows:

 

(In thousands)

      

2020

   $ 298,172  

2021

     432,641  

2022

     553,109  

2023

     588,042  

2024

     528,749  

Thereafter

     257,911  

Equipment under leases not yet commenced

     47,141  
  

 

 

 

Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases

     2,705,765  

Third-party residual value guarantees

     88,447  
  

 

 

 

Total carrying amount of direct financing and sales-type leases

   $ 2,794,212  
  

 

 

 

Undiscounted future minimum lease payments expected to be received for operating leases at December 31, 2019 were as follows:

 

(In thousands)

      

2020

   $ 75,507  

2021

     54,274  

2022

     31,494  

2023

     14,405  

2024

     5,283  

Thereafter

     3,674  
  

 

 

 

Total undiscounted future minimum lease payments

   $ 184,637  
  

 

 

 

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

 

     Year Ended December 31,  

(In millions)

   2019      2018      2017  

Sale proceeds, net

   $ 2,951,445      $ 1,275,960      $ 1,899,430  

Recorded investment in loans and leases sold, including accrued interest

     2,888,408        1,238,018        1,837,500  

Loss on transfer of loans to held-for-sale, interest-only strips at initial value and other

     (36,729      (4,247      (16,612
  

 

 

    

 

 

    

 

 

 

Net gains on sales of loans and leases

   $ 26,308      $ 33,695      $ 45,318  
  

 

 

    

 

 

    

 

 

 

During the fourth quarter of 2019, we completed the sale of the Legacy TCF auto finance portfolio of $1.1 billion, which had been included within loans held-for-sale at September 30, 2019, resulting in a $27.5 million loss for the year, included in net gains on sales of loans and leases.

The remaining interest-only strips on the balance sheet related to loan sales were as follows:

 

     At December 31,  

(In thousands)

   2019      2018  

Interest-only strips

   $ 12,813      $ 16,835  

We recorded $62 thousand, $661 thousand and $1.6 million of impairment charges on interest-only strips in 2019, 2018 and 2017, respectively.


The Corporation’s agreements to sell consumer loans typically contain certain representations, warranties and covenants regarding the loans sold or securitized. These representations, warranties and covenants generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer or investor, the loan’s compliance with the criteria set forth in the agreement, the manner in which the loans will be serviced, payment delinquency and compliance with applicable laws and regulations. These agreements generally require the repurchase of loans or indemnification in the event we breach these representations, warranties or covenants and such breaches are not cured. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower or the failure to obtain valid title. Losses related to repurchases pursuant to such representations, warranties and covenants were immaterial for 2019, 2018 and 2017.

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

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

 

     At or For the Year Ended December 31, 2019  

(In thousands)

   Consumer Loan
Portfolio
     Commercial Loan and
Lease Portfolio
     Total Loans
and Leases
 

Balance, beginning of period

   $ 80,017      $ 77,429      $ 157,446  

Charge-offs

     (50,480      (47,455      (97,935

Recoveries

     23,653        6,731        30,384  
  

 

 

    

 

 

    

 

 

 

Net (charge-offs) recoveries

     (26,827      (40,724      (67,551
  

 

 

    

 

 

    

 

 

 

Provision for credit losses

     17,492        47,790        65,282  

Other(1)

     (42,110      (15      (42,125
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 28,572      $ 84,480      $ 113,052  
  

 

 

    

 

 

    

 

 

 
     At or For the Year Ended December 31, 2018  

(In thousands)

   Consumer Loan
Portfolio
     Commercial Loan and
Lease Portfolio
     Total Loans
and Leases
 

Balance, beginning of period

   $ 98,085      $ 72,956      $ 171,041  

Charge-offs

     (64,520      (20,208      (84,728

Recoveries

     26,487        3,216        29,703  
  

 

 

    

 

 

    

 

 

 

Net (charge-offs) recoveries

     (38,033      (16,992      (55,025
  

 

 

    

 

 

    

 

 

 

Provision for credit losses

     24,851        21,917        46,768  

Other(1)

     (4,886      (452      (5,338
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 80,017      $ 77,429      $ 157,446  
  

 

 

    

 

 

    

 

 

 
     At or For the Year Ended December 31, 2017  

(In thousands)

   Consumer Loan
Portfolio
     Commercial Loan and
Lease Portfolio
     Total Loans
and Leases
 

Balance, beginning of period

   $ 92,292      $ 67,977      $ 160,269  

Charge-offs

     (59,831      (19,261      (79,092

Recoveries

     30,916        3,736        34,652  
  

 

 

    

 

 

    

 

 

 

Net (charge-offs) recoveries

     (28,915      (15,525      (44,440
  

 

 

    

 

 

    

 

 

 

Provision for credit losses

     47,911        20,532        68,443  

Other(1)

     (13,203      (28      (13,231
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 98,085      $ 72,956      $ 171,041  
  

 

 

    

 

 

    

 

 

 

 

(1)

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


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

 

     At December 31, 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

   $ 26,430      $ 75,756      $ 102,186  

Individually evaluated for impairment

     1,468        5,769        7,237  

Loans acquired with deteriorated credit quality

     674        2,955        3,629  
  

 

 

    

 

 

    

 

 

 

Total

   $ 28,572      $ 84,480      $ 113,052  
  

 

 

    

 

 

    

 

 

 

Loans and leases outstanding:

        

Collectively evaluated for impairment

   $ 11,087,534      $ 22,986,607      $ 34,074,141  

Individually evaluated for impairment

     60,694        115,843        176,537  

Loans acquired with deteriorated credit quality

     72,895        173,891        246,786  
  

 

 

    

 

 

    

 

 

 

Total

   $ 11,221,123      $ 23,276,341      $ 34,497,464  
  

 

 

    

 

 

    

 

 

 

 

     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      $ 11,587,372      $ 18,873,125  

Individually evaluated for impairment

     128,159        67,919        196,078  

Loans acquired with deteriorated credit quality

     —          3,817        3,817  
  

 

 

    

 

 

    

 

 

 

Total

   $ 7,413,912      $ 11,659,108      $ 19,073,020  
  

 

 

    

 

 

    

 

 

 

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

 

     At December 31, 2019  

(In thousands)

   Current      30-89 Days
Delinquent
and Accruing
     90 Days or
More
Delinquent
and Accruing
     Total
Accruing
     Nonaccrual      Total  

Commercial loan and lease portfolio:

                 

Commercial and industrial

   $ 11,283,832      $ 29,780      $ 331      $ 11,313,943      $ 53,812      $ 11,367,755  

Commercial real estate

     8,993,360        10,291        1,440        9,005,091        29,735        9,034,826  

Lease financing

     2,662,354        24,657        1,901        2,688,912        10,957        2,699,869  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     22,939,546        64,728        3,672        23,007,946        94,504        23,102,450  

Consumer loan portfolio:

                 

Residential mortgage

     6,056,817        17,245        559        6,074,621        38,577        6,113,198  

Consumer installment

     1,536,714        4,292        108        1,541,114        714        1,541,828  

Home equity

     3,434,771        22,568        —          3,457,339        35,863        3,493,202  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     11,028,302        44,105        667        11,073,074        75,154        11,148,228  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PCI loans(1)

     217,206        3,843        25,737        246,786      $ —          246,786  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 34,185,054      $ 112,676      $ 30,076      $ 34,327,806      $ 169,658      $ 34,497,464  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.


     At December 31, 2018  

(In thousands)

   Current      30-89 Days
Delinquent
and Accruing
     90 Days or
More
Delinquent
and Accruing
     Total
Accruing
     Nonaccrual      Total  

Commercial loan and lease portfolio:

                 

Commercial and industrial

   $ 6,253,949      $ 13,653      $ 760      $ 6,268,362      $ 26,061      $ 6,294,423  

Commercial real estate

     2,826,187        —          —          2,826,187        4,518        2,830,705  

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.

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

 

(In thousands)

   Pass      Special Mention      Substandard      Total  

At December 31, 2019

           

Commercial loan and lease portfolio:

           

Commercial and industrial

   $ 10,930,939      $ 315,097      $ 193,566      $ 11,439,602  

Commercial real estate

     8,891,361        170,114        75,395        9,136,870  

Lease financing

     2,646,874        28,091        24,904        2,699,869  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     22,469,174        513,302        293,865        23,276,341  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

           

Residential mortgage

     6,135,096        565        44,144        6,179,805  

Consumer installment

     1,541,524        —          887        1,542,411  

Home equity

     3,457,292        456        41,159        3,498,907  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     11,133,912        1,021        86,190        11,221,123  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases

   $ 33,603,086      $ 514,323      $ 380,055      $ 34,497,464  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2018

           

Commercial loan and lease portfolio:

           

Commercial and industrial

   $ 6,033,321      $ 158,296      $ 106,623      $ 6,298,240  

Commercial real estate

     2,792,103        12,864        25,738        2,830,705  

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, the Corporation may consider modifying the terms of a loan for economic or legal reasons related to the customer’s financial difficulties. If the Corporation 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:

 

     Year Ended December 31,  
     2019      2018      2017  

(In thousands)

   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

   $ 5,347      $ 5,347      $ 7,253      $ 7,253      $ 10,266      $ 10,241  

Commercial real estate

     35,997        35,997        5,228        5,228        3,077        3,077  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     41,344        41,344        12,481        12,481        13,343        13,318  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

     6,053        5,912        5,333        5,259        7,666        7,480  

Consumer installment

     217        183        1,052        1,052        892        892  

Home equity

     4,144        4,089        2,182        2,181        2,169        2,157  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     10,414        10,184        8,567        8,492        10,727        10,529  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 51,758      $ 51,528      $ 21,048      $ 20,973      $ 24,070      $ 23,847  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents TDR loans:

 

     At December 31, 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

   $ 12,986      $ 5,356      $ 18,342      $ 12,665      $ 6,153      $ 18,818  

Consumer loan portfolio

     12,403        14,875        27,278        85,794        22,554        108,348  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,389      $ 20,231      $ 45,620      $ 98,459      $ 28,707      $ 127,166  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $638 thousand at both December 31, 2019 and December 31, 2018.

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

 

     Year Ended December 31,  

(In thousands)

   2019      2018      2017  

Defaulted TDR loan balances modified during the applicable period

        

Commercial loan and lease portfolio:

        

Commercial and industrial

   $ 956      $ 4,697      $ 555  
  

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     956        4,697        555  
  

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

        

Residential mortgage

     1,325        3,258        2,819  

Consumer installment

     1,555        1,436        1,169  

Home equity

     401        558        841  
  

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     3,281        5,252        4,829  
  

 

 

    

 

 

    

 

 

 

Defaulted TDR loan balances

   $ 4,237      $ 9,949      $ 5,384  
  

 

 

    

 

 

    

 

 

 

Impaired Loans and Leases Effective January 1, 2019, in conjunction with the adoption of ASU No. 2016-02, Leases (Topic 842) and related ASUs, the Corporation considers impaired loans and leases to include nonaccrual commercial loans and leases, as well as all commercial and consumer TDR loans. Previously, the Corporation 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 the Consolidated Statements of Financial Condition, whereas the unpaid contractual balance represents the balances legally owed by the borrowers.


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

 

     At December 31, 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

   $ 20,069      $ 20,090      $ 2,844      $ 35,444      $ 32,326      $ 6,354  

Commercial real estate

     4,225        3,962        333        4,905        4,474        1,108  

Lease financing

     10,956        10,956        2,592        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     35,250        35,008        5,769        40,349        36,800        7,462  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

     24,297        22,250        1,030        63,004        60,172        17,216  

Consumer installment

     —          —          —          919        647        81  

Home equity

     9,418        8,791        438        27,386        25,836        5,288  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     33,715        31,041        1,468        91,309        86,655        22,585  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans and leases with an allowance recorded

     68,965        66,049        7,237        131,658        123,455        30,047  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans and leases without an allowance recorded:

 

Commercial loan and lease portfolio:

                 

Commercial and industrial

     55,889        39,098        —          2,239        2,237        —    

Commercial real estate

     69,143        41,737        —          4,275        4,208        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     125,032        80,835        —          6,514        6,445        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

     31,142        22,594        —          11,636        9,494        —    

Consumer installment

     2,095        880        —          15,400        10,770        —    

Home equity

     24,709        6,179        —          10,620        1,429        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     57,946        29,653        —          37,656        21,693        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans and leases without an allowance recorded

     182,978        110,488        —          44,170        28,138        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans and leases

   $ 251,943      $ 176,537      $ 7,237      $ 175,828      $ 151,593      $ 30,047  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


The average balances of impaired loans and leases and interest income recognized on impaired loans and leases for the year ended December 31, 2019 and the average loan balance of impaired loans and interest income recognized on impaired loans for the years ended December 31, 2018 and December 31, 2017 were as follows:

 

     Year Ended December 31,  
     2019      2018      2017  

(In thousands)

   Average
Loan and
Lease
Balance
     Interest
Income
Recognized
     Average
Loan
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

   $ 26,208      $ 54      $ 29,285      $ 282      $ 20,260      $ 347  

Commercial real estate

     4,218        172        5,588        —          8,388        16  

Lease financing

     5,478        153        —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     35,904        379        34,873        282        28,648        363  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

     41,211        1,942        68,850        1,653        89,247        2,125  

Consumer installment

     324        1        834        —          3,223        —    

Home equity

     17,313        849        29,327        1,609        43,932        2,111  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     58,848        2,792        99,011        3,262        136,402        4,236  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans and leases with an allowance recorded

     94,752        3,171        133,884        3,544        165,050        4,599  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans and leases without an allowance recorded

                 

Commercial loan and lease portfolio:

                 

Commercial and industrial

     20,667        205        2,527        173        1,971        200  

Commercial real estate

     22,972        1,209        4,350        231        10,136        709  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     43,639        1,414        6,877        404        12,107        909  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

     16,044        983        9,923        655        11,428        896  

Consumer installment

     5,825        256        9,284        302        5,103        209  

Home equity

     3,804        174        1,553        216        1,864        463  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     25,673        1,413        20,760        1,173        18,395        1,568  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans and leases without an allowance recorded

     69,312        2,827        27,637        1,577        30,502        2,477  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans and leases

   $ 164,064      $ 5,998      $ 161,521      $ 5,121      $ 195,552      $ 7,076  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Real Estate Owned and Repossessed and Returned Assets Other real estate owned, repossessed and returned assets and consumer real estate loans in process of foreclosure were as follows:

 

     At December 31,  

(In thousands)

   2019      2018  

Other real estate owned

   $ 34,256      $ 17,403  

Repossessed and returned assets

     8,045        14,574  

Consumer real estate loans in process of foreclosure

     17,758        15,540  

On August 1, 2019, the Corporation acquired $14.6 million of other real estate owned and $338 thousand of repossessed and returned assets in connection with the Merger. Other real estate owned and repossessed and returned assets were written down $7.7 million, $3.4 million and $6.2 million in 2019, 2018 and 2017, respectively.


Note 9. Premises and Equipment, Net

Premises and equipment, net were as follows:

 

     At December 31,  

(In thousands)

   2019      2018  

Land

   $ 151,332      $ 144,754  

Office buildings

     334,673        268,495  

Leasehold improvements

     59,141        51,868  

Furniture, equipment and computer software

     440,678        404,743  

Premises and equipment leased under finance leases

     3,180        3,180  
  

 

 

    

 

 

 

Subtotal

     989,004        873,040  

Accumulated depreciation and amortization

     (455,866      (445,506
  

 

 

    

 

 

 

Premises and equipment, net

   $ 533,138      $ 427,534  
  

 

 

    

 

 

 

Depreciation and amortization expense related to premises and equipment was $75.3 million, $48.6 million and $45.9 million for 2019, 2018 and 2017, respectively.

Note 10. Goodwill and Other Intangible Assets

Goodwill was as follows:

 

     At December 31,  

(In thousands)

   2019      2018  

Goodwill related to consumer banking segment

   $ 764,389      $ 141,246  

Goodwill related to commercial banking segment

     535,489        13,511  
  

 

 

    

 

 

 

Goodwill, net

   $ 1,299,878      $ 154,757  
  

 

 

    

 

 

 

The Corporation recorded goodwill in the amount of $1.1 billion related to the merger with Legacy TCF and Chemical completed on August 1, 2019. Goodwill was allocated to the appropriate reporting unit based on the relative fair value of assets acquired and deposits held by the reporting unit. This methodology allocates goodwill in proportion to the assets held by each reporting unit as well as incorporating the value of the funding source provided by the in place deposits. The reporting units aggregate between the Consumer Banking and Commercial Banking segments. See “Note 2. Merger” for further information. There was an impairment charge to goodwill of $73.0 million in 2017 related to the acquisition of Gateway One as a result of the Corporation’s decision to discontinue auto finance loan originations effective December 31, 2017. Goodwill related to Gateway One was fully impaired at December 31, 2017. There was no impairment of goodwill in 2019 and 2018.

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

 

(In thousands)

   Core deposit
intangibles
    Program
agreements
    Non-compete
agreements
    Customer
relationships