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) Depositary Shares (each representing a 1/40th interest in a share of 4.500% Series H Non-Cumulative, perpetual preferred stock) OH false 0000049196 0000049196 2021-04-30 2021-04-30 0000049196 us-gaap:SeriesCPreferredStockMember 2021-04-30 2021-04-30 0000049196 us-gaap:SeriesDPreferredStockMember 2021-04-30 2021-04-30 0000049196 us-gaap:SeriesHPreferredStockMember 2021-04-30 2021-04-30 0000049196 us-gaap:CommonStockMember 2021-04-30 2021-04-30

 

 

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) April 30, 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
Depositary Shares (each representing a 1/40th interest in a share of 4.500% Series H Non-Cumulative, perpetual preferred stock)   HBANP   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, 2020 and 2019 and for each of the fiscal years ended December 31, 2020, 2019 and 2018; and (ii) 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, 2020, nor does it reflect any subsequent information or events. The information referenced in item (i) 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, 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 satisfy any of the 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, 2020 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, 2020 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.

 

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, 2020 and 2019, and for each of the fiscal year ended December 31, 2020, 2019 and 2018.
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: April 30, 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 February 26, 2021, with respect to the consolidated statements of financial condition of TCF Financial Corporation and subsidiaries (the “Corporation”) as of December 31, 2020 and 2019, 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, 2020, and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2020, which reports are included in the Form 8-K of Huntington Bancshares Incorporated.

As discussed in Note 2 to the consolidated financial statements, the Corporation changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

/s/ KPMG LLP

Detroit, Michigan

April 30, 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, 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, 2020, 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 February 26, 2021 expressed an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Corporation has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

1


Allowance for loan and lease losses evaluated on a collective basis

As discussed in Notes 2 and 8 to the consolidated financial statements, the Corporation adopted Topic 326 as of January 1, 2020. The total allowance for credit losses (ACL) as of January 1, 2020 and December 31, 2020 was $337.3 million and $549.2 million, respectively; a portion of which related to the allowance for loan and lease losses evaluated on a collective basis (together, the collective ALLL). The Corporation’s estimate of the collective ALLL uses a current expected credit losses methodology that consists of both quantitative and qualitative loss components. The Corporation estimates the quantitative component by segmenting the loan and lease portfolio into pools of loans and leases with similar risk characteristics. Expected credit losses for the quantitative component of the collective ALLL are calculated as the product of (i) probability of default (PD), (ii) loss given default (LGD), and (iii) exposure at default (EAD) on an undiscounted basis. The PD and LGD incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. Following the reasonable and supportable forecast period, the Corporation reverts on a straight-line basis over the reversion period to its historical loss rates for the remaining life of the respective loans and leases. The historical loss rates are determined based on loss data evaluated over the historical observation periods. The Corporation estimates the EAD using a prepayment methodology which projects prepayments over the life of the loans and leases. The qualitative component of the collective ALLL is comprised of adjustments for economic conditions and asset-specific risk characteristics to the extent they do not exist in the historical loss information. These adjustments are based on qualitative factors not reflected in the quantitative component and impact the measurement of expected credit losses.

We identified the assessment of the January 1, 2020 collective ALLL and December 31, 2020 collective ALLL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ALLL methodology, including the (1) models used to estimate the PD and LGD, (2) determination of portfolio segmentation, (3) credit risk rating assumptions for commercial loans and leases, (4) selection of the economic forecast scenario and macroeconomic assumptions, (5) determination of the length of the reasonable and supportable forecast and reversion periods, and (6) qualitative adjustments. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Corporation’s measurement of the collective ALLL estimates, including controls over the:

 

   

development of the collective ALLL methodology

 

   

development of the PD and LGD models

 

   

performance monitoring of the PD and LGD models for the December 31, 2020 collective ALLL

 

   

identification and determination of the assumptions used in the quantitative component of the collective ALLL methodology

 

   

development of the adjustments for qualitative factors

 

   

analysis of the ACL results, trends, and ratios.

We evaluated the Corporation’s process to develop the collective ALLL estimates by testing certain sources of data and assumptions that the Corporation used, and we considered the relevance and reliability of such data and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

 

   

evaluating the Corporation’s collective ALLL methodology for compliance with U.S. generally accepted accounting principles

 

2


   

evaluating judgments made by the Corporation relative to the development and performance testing of the PD and LGD models by comparing them to relevant Corporation specific metrics and trends and the applicable industry and regulatory practices

 

   

assessing the conceptual soundness of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use

 

   

evaluating the selection of the economic forecast scenario and related macroeconomic assumptions by comparing it to the Corporation’s business environment, relevant industry practices and publicly available forecasts

 

   

evaluating the length of the reasonable and supportable forecast and reversion periods by comparing them to specific portfolio risk characteristics and trends

 

   

determining whether the loan and lease portfolios are segmented by similar risk characteristics by comparing to the Corporation’s business environment and relevant industry practices

 

   

testing individual credit risk ratings for a selection of certain commercial loan and lease borrower relationships by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral

 

   

evaluating the methodology used to develop the adjustments for qualitative factors and the effect of those factors on the collective ALLL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models.

We also assessed the sufficiency of the audit evidence obtained related to the January 1, 2020 collective ALLL and December 31, 2020 collective ALLL by evaluating the:

 

   

cumulative results of the audit procedures

 

   

qualitative aspects of the Corporation’s accounting practices

 

   

potential bias in the accounting estimates.

/s/ KPMG LLP

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

Detroit, Michigan

February 26, 2021

 

3


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per share data)

   At December 31, 2020     At December 31, 2019  

ASSETS

    

Cash and cash equivalents:

    

Cash and due from banks

   $ 531,918   $ 491,787

Interest-bearing deposits with other banks

     728,677     736,584
  

 

 

   

 

 

 

Total cash and cash equivalents

     1,260,595     1,228,371

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

     320,436     442,440

Investment securities:

    

Available-for-sale, at fair value (amortized cost of $8,041,173 and $6,639,277)

     8,284,723     6,720,001

Held-to-maturity, at amortized cost (fair value of $193,554 and $144,844)

     184,359     139,445
  

 

 

   

 

 

 

Total investment securities

     8,469,082     6,859,446

Loans and leases held-for-sale (includes $221,784 and $91,202 at fair value)

     222,028     199,786

Loans and leases

     34,466,408     34,497,464

Allowance for loan and lease losses

     (525,868     (113,052
  

 

 

   

 

 

 

Loans and leases, net

     33,940,540     34,384,412

Premises and equipment, net

     470,131     533,138

Goodwill

     1,313,046     1,299,878

Other intangible assets, net

     146,377     168,368

Loan servicing rights

     38,303     56,313

Other assets

     1,621,949     1,479,401
  

 

 

   

 

 

 

Total assets

   $ 47,802,487   $ 46,651,553
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 11,036,086   $ 7,970,590

Interest-bearing

     27,820,233     26,497,873
  

 

 

   

 

 

 

Total deposits

     38,856,319     34,468,463

Short-term borrowings

     617,363     2,669,145

Long-term borrowings

     1,374,732     2,354,448

Other liabilities

     1,264,776     1,432,256
  

 

 

   

 

 

 

Total liabilities

     42,113,190     40,924,312
  

 

 

   

 

 

 

Equity

    

Preferred stock, $0.01 par value, 2,000,000 shares authorized; 7,000 shares issued

     169,302     169,302

Common stock, $1.00 par value, 220,000,000 shares authorized

    

Issued—152,565,504 shares at December 31, 2020 and 152,965,571 shares at December 31, 2019

     152,566     152,966

Additional paid-in capital

     3,457,802     3,462,080

Retained earnings

     1,735,201     1,896,427

Accumulated other comprehensive income

     182,673     54,277

Other

     (26,731     (28,037
  

 

 

   

 

 

 

Total TCF Financial Corporation shareholders’ equity

     5,670,813     5,707,015

Non-controlling interest

     18,484     20,226
  

 

 

   

 

 

 

Total equity

     5,689,297     5,727,241
  

 

 

   

 

 

 

Total liabilities and equity

   $ 47,802,487   $ 46,651,553
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

 

     Year Ended December 31,  

(Dollars in thousands, except per share data)

   2020      2019      2018  

Interest income

        

Interest and fees on loans and leases

   $ 1,575,186    $ 1,430,628    $ 1,082,135

Interest on investment securities:

        

Taxable

     144,462        106,027        41,406  

Tax-exempt

     16,168        11,651        17,138  

Interest on loans held-for-sale

     11,394        18,599        6,686  

Interest on other earning assets

     18,452        20,356        11,964  
  

 

 

    

 

 

    

 

 

 

Total interest income

     1,765,662        1,587,261        1,159,329  
  

 

 

    

 

 

    

 

 

 

Interest expense

        

Interest on deposits

     166,986        226,157        107,690  

Interest on borrowings

     60,275        72,072        43,144  
  

 

 

    

 

 

    

 

 

 

Total interest expense

     227,261        298,229        150,834  
  

 

 

    

 

 

    

 

 

 

Net interest income

     1,538,401        1,289,032        1,008,495  

Provision for credit losses

     257,151        65,282        46,768  
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     1,281,250        1,223,750        961,727  
  

 

 

    

 

 

    

 

 

 

Noninterest income

        

Leasing revenue

     142,723        163,718        172,603  

Fees and service charges on deposit accounts

     112,681        127,860        113,242  

Card and ATM revenue

     88,699        87,221        78,406  

Net gains on sales of loans and leases

     86,776        26,308        33,695  

Wealth management revenue

     25,701        10,413        —    

Servicing fee revenue

     10,603        20,776        27,334  

Net gains on investment securities

     2,338        7,425        348  

Other

     46,542        21,811        28,769  
  

 

 

    

 

 

    

 

 

 

Total noninterest income

     516,063        465,532        454,397  
  

 

 

    

 

 

    

 

 

 

Noninterest expense

        

Compensation and employee benefits

     702,702        576,922        502,196  

Occupancy and equipment

     209,690        189,560        165,839  

Lease financing equipment depreciation

     73,204        76,426        73,829  

Net foreclosed real estate and repossessed assets

     5,136        13,523        17,050  

Merger-related expenses

     203,888        171,968        —    

Other

     332,751        303,716        255,486  
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

     1,527,371        1,332,115        1,014,400  
  

 

 

    

 

 

    

 

 

 

Income before income tax expense

     269,942        357,167        401,724  

Income tax expense

     39,901        50,241        86,096  
  

 

 

    

 

 

    

 

 

 

Income after income tax expense

     230,041        306,926        315,628  

Income attributable to non-controlling interest

     7,282        11,458        11,270  
  

 

 

    

 

 

    

 

 

 

Net income attributable to TCF Financial Corporation

     222,759        295,468        304,358  

Preferred stock dividends

     9,975        9,975        11,588  

Impact of preferred stock redemption

     —          —          3,481  
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 212,784      $ 285,493      $ 289,289  
  

 

 

    

 

 

    

 

 

 

Earnings per common share

        

Basic

   $ 1.40      $ 2.56      $ 3.44  

Diluted

     1.40        2.55        3.43  

Weighted-average common shares outstanding

        

Basic

     151,812,393        111,604,094        84,133,983  

Diluted

     151,887,559        111,818,365        84,324,686  

See accompanying notes to consolidated financial statements.

 

5


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

 

     Year Ended December 31,  

(In thousands)

   2020     2019     2018  

Net income attributable to TCF Financial Corporation

   $ 222,759   $ 295,468   $ 304,358

Other comprehensive income (loss), net of tax:

      

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

     126,390     84,120     (11,669

Net unrealized gains (losses) on net investment hedges

     (4,195     (5,186     10,450

Foreign currency translation adjustment

     5,894     8,514     (13,368

Recognized postretirement prior service cost

     307     (33     (34
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     128,396     87,415     (14,621
  

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 351,155   $ 382,883   $ 289,737
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


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)
    Other     Total     Non-
controlling
Interest
    Total
Equity
 

(Dollars in thousands)

  Preferred     Common  

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 4,668,723 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
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

7


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)
    Other     Total     Non-
controlling
Interest
    Total
Equity
 

(Dollars in thousands)

  Preferred     Common  

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

Cumulative effect adjustment related to adoption of Accounting Standards Update 2016-13(1)

    —         —         —         —         —         (159,323     —         —         (159,323     74     (159,249
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2020

    7,000     152,965,571     169,302     152,966     3,462,080     1,737,104     54,277     (28,037     5,547,692     20,300     5,567,992

Net income

    —         —         —         —         —         222,759     —         —         222,759     7,282     230,041

Other comprehensive income (loss), net of tax

    —         —         —         —         —         —         128,396     —         128,396     —         128,396

Net investment by (distribution to) non-controlling interest

    —         —         —         —         —         —         —         —         —         (9,098     (9,098

Repurchases of 873,376 shares of common stock

    —         (873,376     —         (873     (32,225     —         —         —         (33,098     —         (33,098

Dividends on 5.70% Series C Preferred Stock

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

Dividends on common stock of $1.40 per common share

    —         —         —         —         —         (214,687     —         —         (214,687     —         (214,687

Stock compensation plans, net of tax

    —         473,309     —         473     29,253     —         —         —         29,726     —         29,726

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

    —         —         —         —         (1,306     —         —         1,306     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2020

    7,000     152,565,504   $ 169,302   $ 152,566   $ 3,457,802   $ 1,735,201     $ 182,673   $ (26,731   $ 5,670,813   $ 18,484   $ 5,689,297
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See “Note 2. Summary of Significant Accounting Policies” for further information

See accompanying notes to consolidated financial statements.

 

8


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

     Year Ended December 31,  

(In thousands)

   2020     2019     2018  

Cash flows from operating activities

      

Net income

   $ 230,041   $ 306,926   $ 315,628

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

      

Provision for credit losses

     257,151     65,282     46,768

Share-based compensation expense

     35,438     28,351     17,824

Depreciation and amortization

     437,585     308,638     204,778

Provision (benefit) for deferred income taxes

     (74,841     30,410     58,986

Net gains on sales of assets

     (90,299     (66,298     (39,881

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

     2,001,489     966,352     372,354

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

     (2,011,048     (835,047     (375,622

Impairment of loan servicing rights

     17,605     3,882     —    

Net change in other assets

     (484,298     (263,351     (35,154

Net change in other liabilities

     (119,586     162,533     39,898

Other, net

     (78,131     (65,921     (41,949
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     121,106     641,757     563,630
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Proceeds from sales of investment securities available-for-sale

     50,797     1,986,386     254,146

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

     2,404,269     735,861     169,622

Purchases of investment securities available-for-sale

     (3,587,494     (2,806,598     (1,230,430

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

     37,389     17,632     15,407

Purchases of investment securities held-to-maturity

     (80,533     (6,844     (2,188

Redemption of Federal Home Loan Bank stock

     428,016     256,021     269,002

Purchases of Federal Home Loan Bank stock

     (306,000     (370,000     (278,000

Proceeds from sales of loans and leases

     554,532     1,985,093     903,606

Loan and lease originations and purchases, net of principal collected

     (639,089     (2,037,489     (957,672

Proceeds from sales of other assets

     70,936     113,771     88,942

Purchases of premises and equipment and lease equipment

     (188,378     (154,540     (155,664

Net cash acquired (paid) in business combinations

     —         975,014     —    

Other, net

     17,626     (27,431     20,935
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (1,237,929     666,876     (902,294
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Net change in deposits

     4,457,400     (901,522     549,157

Net change in short-term borrowings

     (2,051,721     45,584     160

Proceeds from long-term borrowings

     7,870,577     5,957,492     9,380,950

Payments on long-term borrowings

     (8,855,775     (5,499,669     (9,182,536

Payments on liabilities related to acquisition and portfolio purchase

     —         (1,000     (2,000

Redemption of Series B preferred stock

     —         —         (100,000

Repurchases of common stock

     (33,098     (86,309     (212,929

Common shares sold to TCF employee benefit plans

     —         —         715

Dividends paid on preferred stock

     (9,975     (9,975     (11,588

Dividends paid on common stock

     (214,687     (156,060     (99,490

Exercise of stock options

     (23     29     (997

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

     (4,553     (6,198     (6,865

Net investment by (distribution to) non-controlling interest

     (9,098     (9,691     (10,638
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,149,047     (667,319     303,939
  

 

 

   

 

 

   

 

 

 

Net change in cash and due from banks

     32,224     641,314     (34,725

Cash and cash equivalents at beginning of period

     1,228,371     587,057     621,782
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,260,595   $ 1,228,371   $ 587,057
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information

      

Cash paid (received) for:

      

Interest on deposits and borrowings

   $ 230,110   $ 269,474   $ 139,026

Income taxes, net

     128,691     12,177     (26,308

Noncash activities:

      

Transfer of loans and leases to other assets

     45,394     88,716     105,247

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

     448,721     2,184,134     848,941
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

9


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1. Basis of Presentation

On August 1, 2019 (the “TCF/Chemical 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 “TCF/Chemical Merger”). Immediately following the TCF/Chemical 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 (“TCF Bank”) surviving the TCF/Chemical Merger. Upon completion of the TCF/Chemical 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 TCF/Chemical 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 TCF/Chemical 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 adjusted to reflect the equivalent number of shares issued to holders of Legacy TCF common stock in the TCF/Chemical Merger. See “Note 3. Business Combinations” for further information. In addition, the assets and liabilities of Chemical as of the TCF/Chemical 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 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.

Note 2. 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.

 

10


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. The Corporation recorded the estimate of fair value based on initial valuations available at the TCF/Chemical Merger Date and these estimates were considered preliminary as of September 30, 2019, and subject to adjustment for up to one year after the TCF/Chemical Merger Date. While the Corporation believes that the information available on the TCF/Chemical Merger Date provided a reasonable basis for estimating fair value, following the TCF/Chemical Merger, the Corporation obtained additional information and evidence and then finalized all valuations and recorded final adjustments during the first quarter of 2020.

In determining the estimated fair value of assets acquired as part of the TCF/Chemical Merger, 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 3. Business Combinations” 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, 2020 and 2019, 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, 2020.

Allowance for Credit Losses The Corporation’s reserve methodology used to determine the appropriate level of the allowance for credit losses (“ACL”) is a critical accounting estimate. Effective January 1, 2020, the Corporation adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs on a modified retrospective basis. The ACL is maintained at a level believed to be appropriate to provide for the current credit losses expected to be incurred in the loan and lease portfolios over the remaining expected life of each financial asset at 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. The Corporation individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for impairment, generally this means troubled debt restructuring (“TDR”) loans, previously removed TDR loans

 

11


and any other loans and leases that no longer exhibit similar risk characteristics of one of the pools of financial assets used for collective evaluation. All other loans and leases are evaluated collectively for impairment. The ACL includes the allowance for loan and lease losses (“ALLL”) and a reserve for unfunded lending commitments (“RULC”). The ALLL and RULC are valuation accounts presented separately on the Consolidated Statements of Financial Condition. The ALLL is deducted from or added to loans’ amortized cost basis to present the net amount expected to be collected. The RULC for letters of credit, financial guarantees and binding unfunded loan commitments is recorded in other liabilities.

Individually evaluated loans and leases are a key component of the ALLL. Individually evaluated consumer loans are generally measured at 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. Individually evaluated commercial 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 consumer and commercial loans and leases is evaluated collectively by various characteristics. The collective evaluation of expected losses in these portfolios is based on their probability of default multiplied by the loss given default and the exposure at default (representing the estimated outstanding principal balance of the loans and leases upon default) on an undiscounted basis, as well as adjustments for forward-looking information, including industry and macroeconomic conditions. Management’s current methodology for the quantitative component of the collective evaluation of expected losses utilizes a single economic forecast scenario over a twenty-four month reasonable and supportable forecast period with a twelve month straight line reversion to historical loss rates. Factors utilized in the determination of the amount of the allowance include historical loss experience and measurement date credit risk characteristics such as product type, lien position, delinquency, collateral value, credit bureau scores, credit risk ratings and financial statement ratios. These quantitative factors, as well as qualitative factors such as adjustments for economic conditions and asset-specific risk characteristics to the extent they do not exist in the historical loss information, are reviewed quarterly. Adjustments are based on qualitative factors not reflected in the quantitative component and impact the measurement of expected credit losses.

Loans and leases are charged off to the extent they are deemed to be uncollectible. Net charge-offs are included in historical data utilized for calculating the ACL. Loans that are not collateral dependent are charged off when deemed uncollectible based on specific facts and circumstances. 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. 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, when the loan is 60 days past due, or within 60 days after receipt of bankruptcy notification, whichever is shorter. Deposit account overdrafts are reported in other loans. Net losses on uncollectible overdrafts are reported as net charge-offs in the ALLL within 60 days from the date of overdraft. Commercial loans and leases that are considered collateral dependent are charged off to the 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.

The RULC leverages the same loss estimate methodology utilized to measure the ALLL. The Corporation estimates expected credit losses over the period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The RULC estimate considers both the likelihood that funding will occur and expected credit losses on funded balances at the time of default.

 

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The amount of the ACL significantly depends on management’s estimates of key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing financial and economic prospects of borrowers, lessees, properties or economic conditions. 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.

Accrued interest receivable is included in other assets on the Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances. Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income.

Management maintains a framework of controls over the estimation process for the ACL, 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 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, the probability of default, loss given default, exposure at default, the inputs to industry and macroeconomic conditions and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance.

Prior to the adoption of ASU No. 2016-13, the allowance for credit losses was calculated in accordance with ASC Topic 310, “Receivables” and ASC Topic 450, “Contingencies”. The allowance for credit losses were 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 not known to require specific allowances. The collective evaluation of incurred losses was based on historical loss rates multiplied by the respective loss emergence periods.

See “Note 8. Allowance for Credit Losses and Credit Quality” and the following details within “Recently Adopted Accounting Policies” for further information.

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

 

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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 credit losses on a quarterly basis, and records any such losses as a component of provision for credit losses in the Consolidated Statements of Income and a corresponding ACL. At December 31, 2020 there was no ACL recorded. 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 credit losses on a quarterly basis, and records any such losses as a component of provision for credit losses in the Consolidated Statements of Income and a corresponding ACL. At December 31, 2020 there was no ACL recorded. 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 records 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. An ALLL is also recorded following the Corporation’s ACL accounting policy. 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 and leases purchased that as of the date of acquisition have experienced a more-than-insignificant deterioration in

 

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credit quality since origination, referred to as purchased financial assets with credit deterioration (“PCD”) assets. In determining whether an acquired asset should be classified as PCD, the Corporation must make numerous assumptions, interpretations and judgments using internal and third-party credit quality information to determine whether or not the asset has experienced more-than-insignificant credit deterioration since origination. 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 ALLL estimated for PCD loans and leases as of the acquisition date is recorded as a gross-up of the loan or lease balance and the ALLL. Any remaining discount or premium after the gross-up is then recognized as an adjustment to yield over the remaining life of each PCD loan or lease. After the acquisition date, the accounting for acquired loans a leases, including PCD and non-PCD loans and leases, follows the same accounting guidance as loans and leases originated by the Corporation.

See “Note 8. Allowance for Credit Losses and Credit Quality” 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. In addition, under the CARES Act, loans and leases that have been granted a deferral of greater than 180 days are generally placed on nonaccrual status.

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 Credit 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.

 

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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.

 

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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 the TCF/Chemical 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 TCF/Chemical 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. The quantitative valuation methodology includes discounted cash flow and market analyses 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.

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

 

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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 Credit Losses and Credit Quality” for further information on other real estate owned and repossessed and returned assets.

Investments in Qualified Affordable Housing Projects and Historic Projects 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 historic 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 and Historic Projects” 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.

 

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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.

Net Investment Hedges Forward foreign exchange contracts, which generally settle within 35 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 2 to 15 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 35 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.

 

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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 19. 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 $177.0 million at December 31, 2020 and $167.6 million at December 31, 2019. Bank-owned life insurance income was $7.8 million and $1.5 million for the years ended December 31, 2020 and December 31, 2019, respectively.

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.

 

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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 26. 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 22. 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 24. 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 16. Accumulated Other Comprehensive Income (Loss)” for further information on accumulated other comprehensive income (loss).

 

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Recently Adopted Accounting Pronouncements

Effective January 1, 2020, the Corporation adopted ASU No. 2020-03, Codification Improvements to Financial Instruments, which is comprised of amendments intended to clarify or improve the accounting guidance for various financial instruments, including fair value measurement and disclosure, disclosures for depository and lending institutions, and the interaction between Topic 326—Financial Instruments—Credit losses and other Topics. Each of the clarifying amendments are either not relevant to the Corporation’s consolidated financial statements or further confirmed the Corporation’s existing interpretation of the accounting guidance. As such, the adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted 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 guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted 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 guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. In addition to providing variable interest entities (“VIE”) guidance to private companies, 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 guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted 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. While the adoption of this guidance required adjustments to our fair value disclosures, it did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted 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. Under the new guidance, the Corporation will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance largely remains unchanged. The adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted 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

 

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forecasts of future economic conditions. Effective January 1, 2020, the Corporation also adopted the following ASUs, which further amend the original CECL guidance in Topic 326: (i) 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; (ii) 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; (iii) ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief, which provides an option to irrevocably elect to apply the fair value option in Subtopic 825-10 to certain instruments within the scope of Subtopic 326-20 upon adoption of Topic 326; (iv) 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. These ASUs were adopted on a modified retrospective basis.

CECL represents a significant change in GAAP and has resulted in a significant change to industry practice, which the Corporation expects will continue to evolve over time. Our adoption resulted in an ALLL as of January 1, 2020 that is larger than the ALLL that would have been recorded under the legacy guidance on the same date by $206.0 million in total for all portfolios. Approximately 20% of the increase 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 increase is a result of new requirements to record ALLL related to acquired loans and leases, regardless of any credit mark previously recorded with respect to them. Approximately 80% of the increase relates to acquired loans and leases, which were recorded at estimated fair value at their respective acquisition date, the majority of which relate to loans and leases acquired in the TCF/Chemical Merger. Under legacy GAAP, credit marks were included in the determination of the fair value adjustments reflected as a discount to the carrying value of the loans, and an ALLL was not recorded on acquired loans and leases until evidence of credit deterioration existed post acquisition. However, upon adoption of CECL an ALLL 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 PCD, the credit and interest marks which existed from acquisition accounting as of December 31, 2019 will continue to accrete over the life of loan. For acquired loans that met the definition of PCI under legacy GAAP and converted to PCD at CECL adoption, the ALLL recorded is recognized through a gross-up that increases the amortized cost basis of loans with a corresponding ALLL, and therefore results in little to no impact to the cumulative effect adjustment to retained earnings. Prior to the adoption of CECL, PCI loans were not classified as nonaccrual loans because they were recorded at their net realizable value based on the principal and interest expected to be collected on the loans. At January 1, 2020, $73.4 million of loans previously classified as PCI were reclassified to nonaccrual loans as a result of the adoption of CECL. The adoption of CECL also resulted in an increase in the liability for unfunded lending commitments of $14.7 million. For other assets within the scope of the standard such as available-for-sale investment securities, held-to-maturity investment securities, and trade and other receivables, the impact from the standard was inconsequential. The cumulative tax effected adjustment to record ALLL and to increase the unfunded lending commitment liability resulted in a reduction to retained earnings of $159.3 million. Post-adoption, as loans and leases are added to the portfolio, the Corporation expects higher levels of ACL determined by CECL assumptions, resulting in accelerated recognition of provision for credit losses, as compared to historical results. In response to the COVID-19 pandemic, the regulatory agencies published a final rule that provides the option to delay the cumulative effect of the day 1 impact of CECL adoption on regulatory capital, along with 25% of the change in the adjusted allowance for credit losses (as computed for regulatory capital purposes which excludes PCD loans), for 2 years, followed by a three-year phase-in period. Management elected the 5-year transition period consistent with the final rule issued by the regulatory agencies. Additional and modified disclosure requirements under CECL are included in “Note 6. Investment Securities” and “Note 8. Allowance for Credit Losses and Credit Quality.”

 

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CARES Act and Interagency Regulatory Guidance Regarding Troubled Debt Restructurings

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. Section 4013 of the CARES Act provides banks the option to temporarily suspend certain TDR accounting guidance for loans modified due to the effects of COVID-19. Additionally, on April 7, 2020, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively the “agencies”) issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement on Loan Modifications”) to encourage banks to work prudently with borrowers and to describe the agencies’ interpretation of how accounting guidance for troubled debt restructuring applies to certain COVID-19-related modifications.

The CARES Act includes a provision permitting the Corporation to opt out of applying TDR accounting guidance for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the President of the United States declares a termination of the COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2019 and meet the other requirements. On December 27, 2020, these provisions were extended to the earlier of January 1, 2022 or 60 days after the President of the United States declares a termination of the COVID-19 national emergency. The Corporation will first assess if a loan modification meets the qualifications. If the loan modification does not meet the qualification under the CARES Act, the Corporation will then assess applicability of the Interagency Statement on Loan Modifications offering practical expedients for short term modifications. Under both guidance principals, subsequent modifications must be re-evaluated for the appropriate accounting treatment. The Corporation will apply its existing accounting policies for those loans that either do not qualify for the relief under either the CARES Act or the Interagency Statement on Loan Modifications, or for which the Corporation has decided not to apply the relief.

The Corporation has granted short-term (up to 180 days) deferral of payment for certain borrowers. In these cases, the Corporation recognizes interest income as earned. The deferred interest will be repaid by the borrower in a future period, and will be evaluated by the Corporation for collectability. Certain borrowers that need additional relief beyond the initial 180 day deferral continue to be evaluated under the CARES Act, if applicable, but will generally be placed on nonaccrual with any remaining accrued interest balance reversed against interest income.

Recently Issued Accounting Pronouncements

In October 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-10, Codification Improvements, which is intended to clarify or correct the unintended application of the Codification of accounting guidance for a wide variety of topics. 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. The adoption of this guidance will not have a material impact on the consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs, which clarifies the intent of certain updates that were included in ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. 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. The adoption of this guidance will not have a material impact on the consolidated financial statements.

 

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In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which reduces the complexity of accounting for certain financial instruments with characteristics of both debt and equity. 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, 2022. Early adoption is allowed, but no earlier than the quarter ending March 31, 2021. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides a number of optional expedients to general accounting guidance intended to ease the burden of the accounting impacts of reference rate reform related to contract modifications and hedge accounting elections. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that the scope of Topic 848 includes derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Adoption of the expedients is allowed after March 12, 2020 and no later than December 31, 2022. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

In January 2020, 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. The adoption of this guidance will not have a material impact 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. The adoption of this guidance will not have a material impact on the consolidated financial statements.

Note 3. Business Combinations

Proposed Merger with Huntington Bancshares Incorporated

On December 13, 2020, TCF and Huntington Bancshares Incorporated (“Huntington”) jointly announced the signing of a definitive merger agreement (the “TCF/Huntington Merger Agreement”). Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, TCF will merge into Huntington, with Huntington continuing as the surviving entity, with dual headquarters for banking operations in Detroit, Michigan and Columbus, Ohio. Huntington is headquartered in Columbus, Ohio with reported assets of $123.0 billion as of December 31, 2020. Under the terms of the TCF/Huntington Merger Agreement, TCF shareholders will receive 3.0028 shares of Huntington common stock for each share of TCF common stock. Holders of TCF common stock will receive cash in lieu of fractional shares. Each outstanding share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF will be converted into the right to receive one share of a newly created series of preferred stock of Huntington. Subject to receipt of regulatory approvals and satisfaction of other customary closing conditions, including approval of both TCF and Huntington shareholders, the transaction is anticipated to close in the second quarter of 2021.

TCF/Chemical Merger

As described in “Note 1. Basis of Presentation,” on August 1, 2019, the Corporation completed the TCF/Chemical Merger with Legacy TCF.

 

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The TCF/Chemical Merger was an all-stock transaction. Pursuant to the merger agreement, on the TCF/Chemical 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 TCF/Chemical 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 TCF/Chemical Merger on August 1, 2019, TCF Financial had approximately 153.5 million shares of common stock outstanding. On the TCF/Chemical 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 TCF/Chemical 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 TCF/Chemical 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 TCF/Chemical 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 TCF/Chemical 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 TCF/Chemical Merger, which represented approximately 53% of the voting interests in TCF Financial upon completion of the TCF/Chemical 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 TCF/Chemical Merger is to determine the ownership of the combined company following the TCF/Chemical Merger. The table below summarizes the ownership of the combined company (“TCF Financial”) following the TCF/Chemical 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
  

 

 

    

 

 

   

 

 

 

Total

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

 

 

    

 

 

   

 

 

 

 

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

 

     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
  

 

 

 

 

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The following table provides the purchase price allocation as of the TCF/Chemical Merger Date and the assets acquired and liabilities assumed at their estimated fair value as of the TCF/Chemical Merger Date as recorded by the Corporation. The Corporation recorded the estimate of fair value based on initial valuations available at the TCF/Chemical Merger Date and these estimates were considered preliminary as of September 30, 2019, and subject to adjustment for up to one year after the TCF/Chemical Merger Date. While the Corporation believes that the information available on the TCF/Chemical Merger Date provided a reasonable basis for estimating fair value, following the TCF/Chemical Merger, the Corporation obtained additional information and evidence and then finalized all valuations and recorded final adjustments during the first quarter of 2020. These adjustments included: (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

     15,713,399

Premises and equipment

     140,219

Loan servicing rights

     59,567

Other intangible assets

     159,532

Net deferred tax asset(2)

     65,685

Other assets

     552,432
  

 

 

 

Total assets acquired

     21,703,700

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

     1,860,267
  

 

 

 

Goodwill resulting from the TCF/Chemical Merger(1)

   $ 1,158,289
  

 

 

 
(1)

All amounts were previously reported in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of the following adjustments to fair value based on additional information obtained in the first quarter of 2020: (i) loans and leases ($17.2 million decrease), (ii) net deferred tax asset ($4.0 million increase), and (iii) goodwill resulting from the TCF/Chemical Merger ($13.2 million increase).

(2)

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

The final loan valuation adjustments also impacted interest income in the first quarter of 2020. Additional accretion of $2.4 million would have been recorded as interest income in the year ended December 31, 2019, had the final loan valuation been recorded at the TCF/Chemical Merger Date.

As described in more detail in “Note 2. Summary of Significant Accounting Policies”, all Chemical loans and leases were recorded at their estimated fair value as of the TCF/Chemical 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.

 

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Information regarding acquired loans and leases included in loans and leases acquired at the TCF/Chemical 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

     (234,304
  

 

 

 

Fair value at acquisition

     15,401,716
  

 

 

 

Total fair value at acquisition

   $ 15,713,399
  

 

 

 

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

 

(In thousands)

      

Business combination

  

Fair value of tangible assets acquired(1)

   $ 21,484,601

Goodwill, loan servicing rights and other identifiable intangible assets acquired(1)

     1,377,388

Liabilities assumed

     19,843,433

Common stock and stock options converted

     3,018,556
  

 

 

 

 

(1)

All amounts were previously reported in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of the following adjustments to fair value based on additional information obtained in the first quarter of 2020: (i) loans and leases ($17.2 million decrease), (ii) net deferred tax asset ($4.0 million increase), and (iii) goodwill resulting from the TCF/Chemical Merger ($13.2 million increase).

Other intangible assets consisted of core deposits and customer relationship intangibles with estimated fair values at the TCF/Chemical 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 TCF/Chemical Merger was 11 years.

As a result of the TCF/Chemical Merger, the Corporation recorded $1.2 billion of goodwill. Of the $1.2 billion, $528.0 million was attributable to Consumer Banking and $630.3 million was attributable to Commercial Banking. The goodwill recorded is not deductible for income tax purposes.

 

29


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 TCF/Chemical Merger had occurred as of January 1, 2018 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (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, 2018. Merger-related expenses incurred by TCF at the effective date of the TCF/Chemical Merger or subsequent to the TCF/Chemical Merger 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 2018. 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 and 2018.

 

     Year Ended December 31,  

(In thousands, except per share data)

   2019      2018  

Net interest income and other noninterest income

   $ 2,225,244    $ 2,228,154

Net income

     587,335      590,594

Net income available to common shareholders

     577,360      575,525

Earnings per share:

     

Basic

   $ 3.77    $ 3.70

Diluted

     3.75      3.67
  

 

 

    

 

 

 

Note 4. Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and interest-bearing deposits in other banks. Total cash and cash equivalents were $1.3 billion and $1.2 billion at December 31, 2020 and 2019, respectively.

As of March 26, 2020, TCF Bank was no longer required by Federal Reserve regulations to maintain reserves in cash on hand or at the Federal Reserve Bank.

The Corporation maintains cash balances that are restricted as to their use in accordance with certain obligations. Cash payments received on loans serviced for third parties are generally held in separate accounts until remitted. The Corporation may also retain cash balances for collateral on certain borrowings and derivatives. The Corporation maintained restricted cash totaling $95.1 million and $68.6 million at December 31, 2020 and 2019, respectively.

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

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

 

     At December 31,  

(In thousands)

   2020      2019  

FHLB stock, at cost

   $ 196,457    $ 318,473

FRB stock, at cost

     123,979      123,967
  

 

 

    

 

 

 

Total investments

   $ 320,436    $ 442,440
  

 

 

    

 

 

 

The investments in FHLB stock are required investments related to the Corporation’s membership 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. The Corporation periodically evaluates investments for impairment. There was no impairment of these investments in 2020, 2019 and 2018.

 

30


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, 2020

           

Debt securities:

           

Obligations of states and political subdivisions

   $ 827,191    $ 44,077    $ 1,087    $ 870,181

Government and government-sponsored enterprises

     196,560      153      813      195,900

Mortgage-backed securities:

           

Residential agency

     6,151,511      157,955      1,388      6,308,078

Residential non-agency

     156,865      2,819      2      159,682

Commercial agency

     669,235      39,715      999      707,951

Commercial non-agency

     39,358      3,072      —        42,430

Total mortgage-backed debt securities

     7,016,969      203,561      2,389      7,218,141

Corporate debt and trust preferred securities

     453      48      —        501
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 8,041,173    $ 247,839    $ 4,289    $ 8,284,723
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2019

           

Debt securities:

           

Obligations of states and political subdivisions

   $ 852,096    $ 12,446    $ 687    $ 863,855

Government and government-sponsored enterprises

     235,045      18      678      234,385

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
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Investment Securities Held-to-Maturity  

(In thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

At December 31, 2020

           

Residential agency mortgage-backed securities

   $ 180,946    $ 9,267    $ 72    $ 190,141

Corporate debt and trust preferred securities

     3,413      —        —        3,413
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity(1)

   $ 184,359    $ 9,267    $ 72    $ 193,554
  

 

 

    

 

 

    

 

 

    

 

 

 

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
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The adoption of CECL was inconsequential to held-to-maturity investment securities. At December 31, 2020 there was no ACL for investment securities held-to-maturity.

 

31


Accrued interest receivable for investment securities was $20.6 million and $21.6 million at December 31, 2020 and 2019, respectively, and is included in other assets on the Consolidated Statements of Financial Condition.

Gross unrealized losses and fair value of available-for-sale 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, 2020  
     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

   $ 139,940    $ 813    $ —        $ —        $ 139,940    $ 813

Obligations of states and political subdivisions

     78,241      1,087      —        —        78,241      1,087

Mortgage-backed securities:

           

Residential agency

     426,171      1,388      —        —        426,171      1,388

Residential non-agency

     1,529      2      —        —        1,529      2

Commercial agency

     96,667      999      —        —        96,667      999

Commercial non-agency

     —        —        —        —        —        —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

     524,367      2,389      —        —        524,367      2,389

Total investment securities available-for-sale

   $ 742,548    $ 4,289    $
—  
 
   $ —        $ 742,548    $ 4,289
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The adoption of CECL was inconsequential to available-for-sale investment securities. At December 31, 2020 there was no ACL for investment securities available-for-sale. At December 31, 2020 there were 176 available-for-sale investment securities in an unrealized loss position. Management assessed each investment security with unrealized losses for credit impairment. Substantially all unrealized losses on investment securities available-for-sale were due to credit spreads and interest rates rather than credit impairment. As part of that assessment management evaluated and concluded that it is more-likely-than-not that the Corporation will not be required and does not intend to sell any of the investment securities prior to recovery of the amortized cost.

 

32


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

 

     Year Ended December 31,  

(In thousands)

   2020      2019      2018  

Gross realized gains

   $ 2,310    $ 10,877    $ 1,148

Gross realized losses

     —        3,491      1,021

Recoveries on previously impaired investment securities held-to-maturity

     28      39      221
  

 

 

    

 

 

    

 

 

 

Net gains on investment securities

   $ 2,338    $ 7,425    $ 348
  

 

 

    

 

 

    

 

 

 

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,  
     2020      2019  

(In thousands)

   Amortized Cost      Fair Value      Amortized Cost      Fair Value  

Investment Securities Available-for-Sale

           

Due in one year or less

   $ 45,912    $ 46,163    $ 66,124    $ 66,112

Due in 1-5 years

     163,346      168,125      191,364      192,065

Due in 5-10 years

     681,135      720,239      547,813      555,523

Due after 10 years

     7,150,780      7,350,196      5,833,976      5,906,301
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 8,041,173    $ 8,284,723    $ 6,639,277    $ 6,720,001
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment Securities Held-to-Maturity

           

Due in one year or less

   $ 400    $ 400    $ —      $ —  

Due in 1-5 years

     2,150      2,150      3,550      3,550

Due in 5-10 years

     46      51      58      64

Due after 10 years

     181,763      190,953      135,837      141,230
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 184,359    $ 193,554    $ 139,445    $ 144,844
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2020 and 2019, investment securities with a carrying value of $1.0 billion and $627.0 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)

   2020      2019  

Commercial loan and lease portfolio:

     

Commercial and industrial(1)

   $ 11,422,383    $ 11,439,602

Commercial real estate

     9,702,587      9,136,870

Lease financing

     2,817,231      2,699,869
  

 

 

    

 

 

 

Total commercial loan and lease portfolio

     23,942,201      23,276,341
  

 

 

    

 

 

 

Consumer loan portfolio:

     

Residential mortgage

     6,182,045      6,179,805

Home equity

     3,108,736      3,498,907

Consumer installment

     1,233,426      1,542,411
  

 

 

    

 

 

 

Total consumer loan portfolio

     10,524,207      11,221,123
  

 

 

    

 

 

 

Total loans and leases(2)

   $ 34,466,408    $ 34,497,464
  

 

 

    

 

 

 

 

(1)

Includes $1.6 billion of PPP loans at December 31, 2020.

(2)

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 $(118.6) million and $(201.5) million at December 31, 2020 and 2019, respectively.

 

33


Accrued interest receivable for loans and leases was $93.6 million and $106.5 million at December 31, 2020 and December 31, 2019, respectively, and is included in other assets on the Consolidated Statements of Financial Condition.

Acquired Loans and Leases The Corporation acquires loans and leases through business combinations and purchases of loan and lease portfolios. These loans and leases are recorded at fair value at acquisition and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. The Corporation purchased jumbo residential mortgage loans at their fair value of $1.1 billion during the year ended December 31, 2020, none of which qualified as PCD loans.

See “Note 2. Summary of Significant Accounting Policies” for further acquired loans and leases policy information.

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

 

     At December 31,  

(In thousands)

   2020      2019  

Carrying amount

   $ 2,893,070    $ 2,794,212

Unguaranteed residual assets

     170,930      152,030

Net direct fees and costs and unearned income

     (246,769      (246,373
  

 

 

    

 

 

 

Total net investment in direct financing and sales-type leases

   $ 2,817,231    $ 2,699,869
  

 

 

    

 

 

 

The carrying amount of the sales-type and direct financing leases subject to residual value guarantees was $344.3 million and $277.1 million at December 31, 2020 and December 31, 2019, respectively.

The components of total lease income were as follows:

 

     Year Ended December 31,  

(In thousands)

   2020      2019  

Interest and fees on loans and leases (Interest income):

     

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

   $ 133,272    $ 131,547
  

 

 

    

 

 

 

Leasing revenue (Noninterest income):

     

Lease income from operating lease payments

     95,530      100,975

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

     21,556      35,694

Gain (losses) on sales of leased equipment

     25,637      27,049
  

 

 

    

 

 

 

Leasing revenue

     142,723      163,718
  

 

 

    

 

 

 

Total lease income

   $ 275,995    $ 295,265
  

 

 

    

 

 

 

Lease financing equipment depreciation on equipment leased to others was $73.2 million and the net book value of equipment leased to others and related initial direct costs under operating leases was $326.9 million at December 31, 2020. 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.

 

34


Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at December 31, 2020 were as follows:

 

(In thousands)

      

2021

   $ 288,066

2022

     408,137

2023

     549,555

2024

     589,430

2025

     511,514

Thereafter

     311,070

Equipment under leases not yet commenced

     30,782
  

 

 

 

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

     2,688,554

Third-party residual value guarantees

     204,516
  

 

 

 

Total carrying amount of direct financing and sales-type leases

   $ 2,893,070
  

 

 

 

Undiscounted future minimum lease payments expected to be received for operating leases at December 31, 2020 were as follows:

 

(In thousands)

      

2021

   $ 75,689

2022

     54,222

2023

     33,560

2024

     15,660

2025

     5,042

Thereafter

     1,957
  

 

 

 

Total undiscounted future minimum lease payments

   $ 186,130
  

 

 

 

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

 

     Year Ended December 31,  

(In thousands)

   2020      2019      2018  

Sale proceeds, net

   $ 2,556,022    $ 2,951,445    $ 1,275,960

Recorded investment in loans and leases sold, including accrued interest

     2,446,969      2,888,408      1,238,018

Changes in fair value of loans held-for-sale and related derivative instruments, capitalized servicing and other

     (22,277      (36,729      (4,247
  

 

 

    

 

 

    

 

 

 

Net gains on sales of loans and leases

   $ 86,776    $ 26,308    $ 33,695
  

 

 

    

 

 

    

 

 

 

During 2019, the Corporation completed the sale of the Legacy TCF auto finance portfolio of $1.1 billion, which had previously been included within loans held-for-sale, 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)

   2020      2019  

Interest-only strips

   $ 7,823    $ 12,813
  

 

 

    

 

 

 

We recorded $224 thousand, $62 thousand and $661 thousand of impairment charges on interest-only strips in 2020, 2019 and 2018, respectively.

 

35


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 2020, 2019 and 2018.

Note 8. Allowance for Credit Losses and Credit Quality

Effective January 1, 2020, the Corporation adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs on a modified retrospective basis. Financial information at December 31, 2020 reflects this adoption, and historical financial information disclosed is in accordance with ASC Topic 310 and ASC Topic 450.

Allowance for Credit Losses The rollforwards of the allowance for credit losses were as follows:

 

(In thousands)

   Consumer Loan
Portfolio
    Commercial Loan
and Lease
Portfolio
    Total Allowance
for Loans and
Leases
    Reserve for
Unfunded
Lending
Commitments(1)
    Total Allowance
for Credit Losses
 

Year ended December 31, 2020

          

Balance, beginning of period

   $ 28,572   $ 84,480   $ 113,052   $ 3,528   $ 116,580

Impact of CECL adoption

     107,337     98,655     205,992     14,707     220,699
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted balance, beginning of period

     135,909     183,135     319,044     18,235     337,279

Charge-offs

     (23,270     (63,245     (86,515     —         (86,515

Recoveries

     15,527     25,905     41,432     —         41,432
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (7,743     (37,340     (45,083     —         (45,083
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     8,773     243,300     252,073     5,078     257,151

Other

     (45     (121     (166     —         (166
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 136,894   $ 388,974   $ 525,868   $ 23,313   $ 549,181
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended December 31, 2019

          

Balance, beginning of period

   $ 80,017   $ 77,429   $ 157,446   $ 1,428   $ 158,874

Charge-offs

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

Recoveries

     23,653     6,731     30,384     —         30,384
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     17,492     47,790     65,282     233     65,515

Other(3)

     (42,110     (15     (42,125     —         (42,125

Addition due to merger

     —         —         —         1,867     1,867
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 28,572   $ 84,480   $ 113,052   $ 3,528   $ 116,580
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended December 31, 2018

          

Balance, beginning of period

   $ 98,085   $ 72,956   $ 171,041   $ 1,479   $ 172,520

Charge-offs

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

Recoveries

     26,487     3,216     29,703     —       $ 29,703
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     24,851     21,917     46,768     (51   $ 46,717

Other(3)

     (4,886     (452     (5,338     —         (5,338
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 80,017   $ 77,429   $ 157,446   $ 1,428   $ 158,874
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

RULC is recognized within other liabilities.

(2)

As a result of the adoption of CECL, effective January 1, 2020, the provision for credit losses includes the provision for unfunded lending commitments that was previously included within other noninterest expense.

(3)

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

 

36


Management considers our ACL of $549.2 million, or 1.59% of total loans and leases, appropriate to cover current credit losses expected to be incurred in the loan and lease portfolios over the remaining expected life of each financial asset at December 31, 2020, including loans and leases which are not currently known to require specific allowances. The increase in ACL and the ACL as a percentage of total loans and leases from December 31, 2019 was primarily due to the adoption of CECL at January 1, 2020, and the impact of COVID-19. During 2020 the COVID-19 pandemic had a negative impact on current and forecasted macroeconomic conditions and created uncertainty around the performance of certain sectors that have been more heavily impacted, including motor coach, shuttle bus, hotel, retail commercial real estate, franchise, retail trade and fitness. In the fourth quarter of 2020, we began to see improvement in current and forecasted macro-economic conditions, however, these improvements were offset by continued uncertainty around the performance of sectors more heavily impacted by COVID-19. PPP loans are individually guaranteed by the Small Business Administration and therefore the accounting under CECL does not require reserves to be recorded on such loans.

The following tables provide additional disclosures previously required by ASC Topic 310 related to the Corporation’s December 31, 2019 balances.

The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology was 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
  

 

 

    

 

 

    

 

 

 

 

37


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

 

     At December 31, 2019  

(In thousands)

   Unpaid Contractual
Balance
     Loan and Lease
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

Commercial real estate

     4,225      3,962      333

Lease financing

     10,956      10,956      2,592
  

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     35,250      35,008      5,769
  

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

        

Residential mortgage

     24,297      22,250      1,030

Home equity

     9,418      8,791      438
  

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     33,715      31,041      1,468
  

 

 

    

 

 

    

 

 

 

Total impaired loans and leases with an allowance recorded

     68,965      66,049      7,237
  

 

 

    

 

 

    

 

 

 

Impaired loans and leases without an allowance recorded:

        

Commercial loan and lease portfolio:

        

Commercial and industrial

     55,889      39,098      —    

Commercial real estate

     69,143      41,737      —    
  

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     125,032      80,835      —    
  

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

        

Residential mortgage

     31,142      22,594      —    

Home equity

     24,709      6,179      —    

Consumer installment

     2,095      880      —    
  

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     57,946      29,653      —    
  

 

 

    

 

 

    

 

 

 

Total impaired loans and leases without an allowance recorded

     182,978      110,488      —    
  

 

 

    

 

 

    

 

 

 

Total impaired loans and leases

   $ 251,943    $ 176,537    $ 7,237
  

 

 

    

 

 

    

 

 

 

 

38


Accruing and Nonaccrual Loans and Leases The Corporation’s key credit quality indicator is the receivable’s payment performance status, defined as accruing or not accruing. 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 90 days delinquent are a leading indicator for future charge-off trends and are generally placed on nonaccrual status. In addition, loans and leases that have requested payment deferral under the CARES Act of greater than 180 days are generally placed on nonaccrual status. The Corporation’s accruing and nonaccrual loans and leases were as follows:

 

(In thousands)

   Current      30-89 Days
Delinquent
and Accruing
     90 Days or More
Delinquent
and Accruing
     Total
Accruing
     Nonaccrual(1)      Total  

At December 31, 2020

                 

Commercial loan and lease portfolio:

                 

Commercial and industrial

   $ 11,119,453    $ 42,033    $ 1,458    $ 11,162,944    $ 259,439    $ 11,422,383

Commercial real estate

     9,453,743      94,383      22      9,548,148      154,439      9,702,587

Lease financing

     2,695,356      27,118      3,935      2,726,409      90,822      2,817,231
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     23,268,552      163,534      5,415      23,437,501      504,700      23,942,201

Consumer loan portfolio:

                 

Residential mortgage

     6,065,379      17,048      1,965      6,084,392      97,653      6,182,045

Home equity

     3,008,450      30,840      63      3,039,353      69,383      3,108,736

Consumer installment

     1,224,059      3,801      —           1,227,860      5,566      1,233,426
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     10,297,888      51,689      2,028      10,351,605      172,602      10,524,207
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,566,440    $ 215,223    $ 7,443    $ 33,789,106    $ 677,302    $ 34,466,408
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2019

                 

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

Home equity

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

Consumer installment

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

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

 

 

    

Purchased credit impaired 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)

Prior to the adoption of CECL as of January 1, 2020, purchased credit impaired loans were not classified as nonaccrual loans because they were recorded at their net realizable value based on the principal and interest expected to be collected on the loans. At January 1, 2020, $73.4 million of previous purchased credit impaired loans were reclassified to nonaccrual loans as a result of the adoption of CECL.

The Corporation’s nonaccrual loans and leases were as follows:

 

     At December 31,  
     2020      2019  

(In thousands)

   Total nonaccrual      Nonaccrual with no ACL      Total nonaccrual  

Commercial loan and lease portfolio:

        

Commercial and industrial

   $ 259,439    $ 55,773    $ 53,812

Commercial real estate

     154,439      79,203      29,735

Lease financing

     90,822      —           10,957
  

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     504,700      134,976      94,504

Consumer loan portfolio:

        

Residential mortgage

     97,653      49      38,577

Home equity

     69,383      23      35,863

Consumer installment

     5,566      3,531      714
  

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     172,602      3,603      75,154
  

 

 

    

 

 

    

 

 

 

Total

   $ 677,302    $ 138,579    $ 169,658
  

 

 

    

 

 

    

 

 

 

 

39


Loans and leases that are 90 days or more delinquent and accruing by year of origination were as follows:

 

     Amortized Cost Basis  

(In thousands)

   Term Loans and Leases by Origination Year      Revolving
Loans and
Leases
     Revolving
Loans and
Leases
Converted
to Term
Loans and
Leases
     Total  

At December 31, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
 

Commercial loan and lease portfolio:

                       

Commercial and industrial

   $ 874    $ 50    $ 94    $ 13    $ —        $ 52    $ 375    $ —      $ 1,458

Commercial real estate

     —          —          —          —          —          22      —          —          22

Lease financing

     1,286      975      680      463      392      139      —          —          3,935
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     2,160      1,025      774      476      392      213      375      —          5,415
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                       

Residential mortgage

     85      134      —          —          —          1,746      —          —          1,965

Home equity

     —          —          —          —          —          27      36      —          63

Consumer installment

     —          —          —          —          —          —          —          —          —    

Total consumer loan portfolio

     85      134      —          —          —          1,773      36      —          2,028
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total 90 days or more delinquent and accruing

   $ 2,245    $ 1,159    $ 774    $ 476    $ 392    $ 1,986    $ 411    $ —      $ 7,443
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans and leases by year of origination were as follows:

 

     Amortized Cost Basis  

(In thousands)

   Term Loans and Leases by Origination Year      Revolving
Loans and
Leases
     Revolving
Loans and
Leases
Converted
to Term
Loans and
Leases
     Total  

At December 31, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
 

Commercial loan and lease portfolio:

                       

Commercial and industrial

   $ 26,109    $ 61,595    $ 60,686    $ 29,360    $ 17,669    $ 23,644    $ 40,364    $ 12    $ 259,439

Commercial real estate

     5,194      4,835      14,452      53,934      21,667      54,357      —          —          154,439

Lease financing

     3,190      27,412      26,348      15,184      8,601      8,145      —          1,942      90,822
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     34,493      93,842      101,486      98,478      47,937      86,146      40,364      1,954      504,700
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

     2,631      9,177      16,391      4,172      2,812      62,470      —          —          97,653

Home equity

     889      1,449      530      379      223      5,149      59,826      938      69,383

Consumer installment

     33      267      181      281      575      4,060      169      —          5,566

Total consumer loan portfolio

     3,553      10,893      17,102      4,832      3,610      71,679      59,995      938      172,602
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

   $ 38,046    $ 104,735    $ 118,588    $ 103,310    $ 51,547    $ 157,825    $ 100,359    $ 2,892    $ 677,302
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

40


The average balance of nonaccrual loans and leases and interest income recognized on nonaccrual loans and leases were as follows:

 

     Year Ended December 31,  
     2020      2019      2018  

(In thousands)

   Average Loan
and Lease
Balance(1)
     Interest
Income
Recognized(1)
     Average Loan
and Lease
Balance
     Interest
Income
Recognized
     Average Loan
and Lease
Balance
     Interest
Income
Recognized
 

Commercial loan and lease portfolio:

                 

Commercial and industrial

   $ 156,626    $ 10,288    $ 39,937    $ 1,844    $ 18,510    $ 324

Commercial real estate

     92,087      11,562      17,127      2,435      5,652      —    

Lease financing

     50,889      244      9,474      152      9,120      76
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     299,602      22,094      66,538      4,431      33,282      400
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

     68,115      3,342      35,843      640      47,529      680

Home equity

     52,623      6,034      30,759      406      7,974      —    

Consumer installment

     3,140      299      4,648      37      23,465      271
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     123,878      9,675      71,250      1,083      78,968      951
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

   $ 423,480    $ 31,769    $ 137,788    $ 5,514    $ 112,250    $ 1,351
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

At January 1, 2020, $73.4 million of previously purchased credit impaired loans were reclassified to nonaccrual loans as a result of the adoption of CECL. Beginning January 1, 2020, interest income, including the related purchase accounting accretion and amortization is included related to 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.

 

41


The amortized cost basis of loans and leases by credit risk classifications and year of origination was as follows:

 

     Amortized Cost Basis  

(In thousands)

   Term Loans and Leases by Origination Year      Revolving
Loans and
Leases(1)
     Revolving
Loans and
Leases
Converted
to Term
Loans and
Leases(2)
        

At December 31, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

                          

Pass

   $ 3,282,275    $ 1,877,468    $ 994,081    $ 547,940    $ 357,567    $ 316,557    $ 3,286,687    $ 48,079    $ 10,710,654

Special mention

     13,377      66,485      46,174      34,959      4,661      6,733      94,338      858      267,585

Substandard

     28,908      69,510      94,227      48,246      52,944      29,295      120,738      276      444,144
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial

     3,324,560      2,013,463      1,134,482      631,145      415,172      352,585      3,501,763      49,213      11,422,383

Commercial real

                          

Pass

     1,361,117      2,193,489      1,877,374      1,211,426      683,612      1,480,027      —          —          8,807,045

Special mention

     17,745      78,236      53,087      197,935      79,540      104,473      —          —          531,016

Substandard

     6,995      53,079      31,930      124,728      57,221      90,573      —          —          364,526
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,385,857      2,324,804      1,962,391      1,534,089      820,373      1,675,073      —          —          9,702,587

Lease financing

                          

Pass

     1,013,374      715,327      393,644      226,818      109,992      30,620      23,806      167,726      2,681,307

Special mention

     4,050      9,871      3,897      4,870      1,484      1,001      —          8,911      34,084

Substandard

     6,440      29,040      27,579      16,150      9,360      8,635      7      4,629      101,840
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total lease financing

     1,023,864      754,238      425,120      247,838      120,836      40,256      23,813      181,266      2,817,231
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     5,734,281      5,092,505      3,521,993      2,413,072      1,356,381      2,067,914      3,525,576      230,479      23,942,201

Consumer loan portfolio:

                          

Residential

                          

Pass

     2,011,791      1,047,735      604,127      435,617      439,816      1,539,779      —          —          6,078,865

Special mention

     —          —          —          —          —          112      —          —          112

Substandard

     3,292      9,311      17,268      4,601      3,814      64,782      —          —          103,068
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total residential mortgage

     2,015,083      1,057,046      621,395      440,218      443,630      1,604,673      —          —          6,182,045

Home equity

                          

Pass

     23,066      51,448      48,092      39,834      29,071      126,147      2,703,354      7,753      3,028,765
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Substandard

     940      1,469      579      515      424      8,354      66,590      1,100      79,971
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home

     24,006      52,917      48,671      40,349      29,495      134,501      2,769,944      8,853      3,108,736

Consumer

                          

Pass

     206,994      371,924      192,067      185,051      119,663      127,252      24,043      67      1,227,061

Substandard

     247      1,179      680      887      909      2,086      377      —          6,365
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer installment

     207,241      373,103      192,747      185,938      120,572      129,338      24,420      67      1,233,426
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     2,246,330      1,483,066      862,813      666,505      593,697      1,868,512      2,794,364      8,920      10,524,207
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases

   $ 7,980,611    $ 6,575,571    $ 4,384,806    $ 3,079,577    $ 1,950,078    $ 3,936,426    $ 6,319,940    $ 239,399    $ 34,466,408
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

This balance includes $23.8 million of leased equipment that has been provided to lessees under certain master lease agreements. Under these agreements, the total amount of equipment included in each lease is provided over time, and additional amounts are required to be provided to the respective lessees in future accounting periods.

(2)

This balance includes $230.5 million of leased equipment that has been provided to lessees under certain master lease agreements. Under these agreements, the total amount of equipment included in each lease was provided over time, and all equipment required by the lease has been provided to the respective lessees in current or previous accounting periods.

 

42


The recorded investment of loans and leases by credit risk categories as of December 31, 2019 was as follows:

 

(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

Home equity

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

Consumer installment

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