Exhibit 99.2

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

 

(Dollars in thousands, except per share data)		At September 30, 2020				At December 31, 2019
ASSETS
Cash and cash equivalents:
Cash and due from banks		$	538,481			$	491,787
Interest-bearing deposits with other banks			1,232,773				736,584
Total cash and cash equivalents			1,771,254				1,228,371
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost			300,444				442,440
Investment securities:
Available-for-sale, at fair value (amortized cost of $7,187,692 and $6,639,277)			7,446,163				6,720,001
Held-to-maturity, at amortized cost (fair value of $180,364 and $144,844)			170,309				139,445
Total investment securities			7,616,472				6,859,446
Loans and leases held-for-sale (includes $460,172 and $91,202 at fair value)			460,427				199,786
Loans and leases			34,343,691				34,497,464
Allowance for loan and lease losses			(515,229	)			(113,052	)
Loans and leases, net			33,828,462				34,384,412
Premises and equipment, net			469,699				533,138
Goodwill			1,313,046				1,299,878
Other intangible assets, net			151,875				168,368
Loan servicing rights			38,253				56,313
Other assets			1,615,857				1,479,401
Total assets		$	47,565,789			$	46,651,553
LIABILITIES AND EQUITY
Liabilities
Deposits:
Noninterest-bearing		$	10,691,041			$	7,970,590
Interest-bearing			28,481,056				26,497,873
Total deposits			39,172,097				34,468,463
Short-term borrowings			655,461				2,669,145
Long-term borrowings			871,845				2,354,448
Other liabilities			1,207,966				1,432,256
Total liabilities			41,907,369				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—152,379,722 shares at September 30, 2020 and 152,965,571 shares at December 31, 2019			152,380				152,966
Additional paid-in capital			3,450,669				3,462,080
Retained earnings			1,700,044				1,896,427
Accumulated other comprehensive income			191,771				54,277
Other			(27,122	)			(28,037	)
Total TCF Financial Corporation shareholders’ equity			5,637,044				5,707,015
Non-controlling interest			21,376				20,226
Total equity			5,658,420				5,727,241
Total liabilities and equity		$	47,565,789			$	46,651,553

See accompanying notes to consolidated financial statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands, except per share data)		2020				2019				2020				2019
Interest income
Interest and fees on loans and leases		$	373,112			$	417,370			$	1,209,034			$	983,890
Interest on investment securities:
Taxable			35,648				31,038				109,073				69,745
Tax-exempt			3,892				3,385				12,396				7,277
Interest on loans held-for-sale			3,829				1,408				8,712				2,832
Interest on other earning assets			3,967				6,607				14,995				13,739
Total interest income			420,448				459,808				1,354,210				1,077,483
Interest expense
Interest on deposits			31,852				70,900				146,056				149,154
Interest on borrowings			11,429				17,115				51,147				48,050
Total interest expense			43,281				88,015				197,203				197,204
Net interest income			377,167				371,793				1,157,007				880,279
Provision for credit losses			69,664				27,188				245,333				50,879
Net interest income after provision for credit losses			307,503				344,605				911,674				829,400
Noninterest income
Leasing revenue			31,905				39,590				102,642				117,032
Fees and service charges on deposit accounts			25,470				34,384				82,899				88,504
Net gains (losses) on sales of loans and leases			23,490				(5,984	)			73,114				13,374
Card and ATM revenue			23,383				23,315				65,704				62,470
Wealth management revenue			6,506				4,241				18,863				4,241
Servicing fee revenue			321				5,121				10,154				14,754
Net gains on investment securities			2,324				5,900				2,332				7,417
Other			5,411				(12,309	)			33,119				(312	)
Total noninterest income			118,810				94,258				388,827				307,480
Noninterest expense
Compensation and employee benefits			168,323				155,745				511,650				395,953
Occupancy and equipment			48,233				49,229				159,628				132,789
Lease financing equipment depreciation			17,932				19,408				54,594				57,797
Net foreclosed real estate and repossessed assets			1,518				2,203				4,375				9,281
Merger-related expenses			54,011				111,259				172,358				124,943
Other			83,423				87,776				245,675				194,781
Total noninterest expense			373,440				425,620				1,148,280				915,544
Income before income tax (benefit) expense			52,873				13,243				152,221				221,336
Income tax (benefit) expense			(4,429	)			(11,735	)			14,870				28,866
Income after income tax (benefit) expense			57,302				24,978				137,351				192,470
Income attributable to non-controlling interest			1,564				2,830				5,950				9,401
Net income attributable to TCF Financial Corporation			55,738				22,148				131,401				183,069
Preferred stock dividends			2,494				2,494				7,481				7,481
Net income available to common shareholders		$	53,244			$	19,654			$	123,920			$	175,588
Earnings per common share
Basic		$	0.35			$	0.15			$	0.82			$	1.79
Diluted			0.35				0.15				0.82				1.79
Weighted-average common shares outstanding
Basic			151,768,337				128,575,171				151,761,299				97,876,262
Diluted			151,821,592				128,754,588				151,826,928				98,055,279

See accompanying notes to consolidated financial statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)		2020				2019				2020				2019
Net income attributable to TCF Financial Corporation		$	55,738			$	22,148			$	131,401			$	183,069
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips			(7,694	)			19,230				138,550				87,223
Net unrealized gains (losses) on net investment hedges			(2,655	)			1,641				3,269				(2,846	)
Foreign currency translation adjustment			3,721				(1,968	)			(4,298	)			5,014
Recognized postretirement prior service cost			(9	)			(9	)			(27	)			(25	)
Total other comprehensive income (loss), net of tax			(6,637	)			18,894				137,494				89,366
Comprehensive income		$	49,101			$	41,042			$	268,895			$	272,435

See accompanying notes to consolidated financial statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity (Unaudited)

At or For the Three Months Ended September 30, 2020 and 2019

 

		TCF Financial Corporation
		Number of Shares Issued								Preferred				Common				Additional Paid-in				Retained				Accumulated Other Comprehensive Income												Non- controlling				Total
(Dollars in thousands)		Preferred				Common				Stock				Stock				Capital				Earnings				(Loss)				Other				Total				Interest				Equity
Balance, June 30, 2020			7,000				152,233,106			$	169,302			$	152,233			$	3,441,925			$	1,700,480			$	198,408			$	(27,093	)		$	5,635,255			$	23,300			$	5,658,555
Net income			—				—				—				—				—				55,738				—				—				55,738				1,564				57,302
Other comprehensive income (loss), net of tax			—				—				—				—				—				—				(6,637	)			—				(6,637	)			—				(6,637	)
Net investment by (distribution to) non-controlling interest			—				—				—				—				—				—				—				—				—				(3,488	)			(3,488	)
Dividends on 5.70% Series C Preferred Stock			—				—				—				—				—				(2,494	)			—				—				(2,494	)			—				(2,494	)
Dividends on common stock of $0.35 per common share			—				—				—				—				—				(53,680	)			—				—				(53,680	)			—				(53,680	)
Stock compensation plans, net of tax			—				146,616				—				147				8,715				—				—				—				8,862				—				8,862
Change in shares held in trust for deferred compensation plans, at cost			—				—				—				—				29				—				—				(29	)			—				—				—
Balance, September 30, 2020			7,000				152,379,722			$	169,302			$	152,380			$	3,450,669			$	1,700,044			$	191,771			$	(27,122	)		$	5,637,044			$	21,376			$	5,658,420
Balance, June 30, 2019			7,000				87,943,860			$	169,302			$	87,944			$	781,788			$	1,874,308			$	37,334			$	(265,017	)		$	2,685,659			$	24,858			$	2,710,517
Net income			—				—				—				—				—				22,148				—				—				22,148				2,830				24,978
Other comprehensive income (loss), net of tax			—				—				—				—				—				—				18,894				—				18,894				—				18,894
Reverse merger with Chemical Financial Corporation			—				65,539,678				—				65,540				2,687,153				—				—				265,863				3,018,556				—				3,018,556
Net investment by (distribution to) non-controlling interest			—				—				—				—				—				—				—				—				—				(4,375	)			(4,375	)
Repurchases of 780,716 shares of common stock			—				—				—				—				—				—				—				(32,310	)			(32,310	)			—				(32,310	)
Dividends on 5.70% Series C Preferred Stock			—				—				—				—				—				(2,494	)			—				—				(2,494	)			—				(2,494	)
Dividends on common stock of $0.35 per common share			—				—				—				—				—				(53,748	)			—				—				(53,748	)			—				(53,748	)
Stock compensation plans, net of tax			—				87,843				—				87				13,070				—				—				242				13,399				—				13,399
Change in shares held in trust for deferred compensation plans, at cost			—				—				—				—				(3,852	)			—				—				3,852				—				—				—
Balance, September 30, 2019			7,000				153,571,381			$	169,302			$	153,571			$	3,478,159			$	1,840,214			$	56,228			$	(27,370	)		$	5,670,104			$	23,313			$	5,693,417

See accompanying notes to consolidated financial statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity (Unaudited)

At or For the Nine Months Ended September 30, 2020 and 2019

 

		TCF Financial Corporation
		Number of Shares Issued								Preferred				Common				Additional Paid-in				Retained				Accumulated Other Comprehensive												Non- controlling				Total
(Dollars in thousands)		Preferred				Common				Stock				Stock				Capital				Earnings				Income (Loss)				Other				Total				Interest				Equity
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			—				—				—				—				—				131,401				—				—				131,401				5,950				137,351
Other comprehensive income (loss), net of tax			—				—				—				—				—				—				137,494				—				137,494				—				137,494
Net investment by (distribution to) non-controlling interest			—				—				—				—				—				—				—				—				—				(4,874	)			(4,874	)
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			—				—				—				—				—				(7,481	)			—				—				(7,481	)			—				(7,481	)
Dividends on common stock of $1.05 per common share			—				—				—				—				—				(160,980	)			—				—				(160,980	)			—				(160,980	)
Stock compensation plans, net of tax			—				287,527				—				287				21,729				—				—				—				22,016				—				22,016
Change in shares held in trust for deferred compensation plans, at cost			—				—				—				—				(915	)			—				—				915				—				—				—
Balance, September 30, 2020			7,000				152,379,722			$	169,302			$	152,380			$	3,450,669			$	1,700,044			$	191,771			$	(27,122	)		$	5,637,044			$	21,376			$	5,658,420
Balance, December 31, 2018			7,000				88,198,460			$	169,302			$	88,198			$	798,627			$	1,766,994			$	(33,138	)		$	(252,182	)		$	2,537,801			$	18,459			$	2,556,260
Net income			—				—				—				—				—				183,069				—				—				183,069				9,401				192,470
Other comprehensive income (loss), net of tax			—				—				—				—				—				—				89,366				—				89,366				—				89,366
Reverse merger with Chemical Financial Corporation			—				65,539,678				—				65,540				2,687,153				—				—				265,863				3,018,556				—				3,018,556
Net investment by (distribution to) non-controlling interest			—				—				—				—				—				—				—				—				—				(4,547	)			(4,547	)
Repurchases of 1,453,908 shares of common stock			—				—				—				—				—				—				—				(58,805	)			(58,805	)			—				(58,805	)
Dividends on 5.70% Series C Preferred Stock			—				—				—				—				—				(7,481	)			—				—				(7,481	)			—				(7,481	)
Dividends on common stock of $0.94 per common share			—				—				—				—				—				(102,368	)			—				—				(102,368	)			—				(102,368	)
Stock compensation plans, net of tax			—				(166,757	)			—				(167	)			(5,626	)			—				—				15,759				9,966				—				9,966
Change in shares held in trust for deferred compensation plans, at cost			—				—				—				—				(1,995	)			—				—				1,995				—				—				—
Balance, September 30, 2019			7,000				153,571,381			$	169,302			$	153,571			$	3,478,159			$	1,840,214			$	56,228			$	(27,370	)		$	5,670,104			$	23,313			$	5,693,417

 

(1)	See “Note 3. Summary of Significant Accounting Policies” for further information

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

 

		Nine Months Ended September 30,
(In thousands)		2020				2019
Cash flows from operating activities
Income after income tax (benefit) expense		$	137,351			$	192,470
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses			245,333				50,879
Share-based compensation expense			26,447				17,762
Depreciation and amortization			320,950				207,954
Provision (benefit) for deferred income taxes			(132,148	)			(27,732	)
Net gains on sales of assets			(97,068	)			(46,966	)
Proceeds from sales of loans and leases held-for-sale			1,271,793				512,051
Originations of loans and leases held-for-sale, net of repayments			(1,540,397	)			(548,371	)
Impairment of loan servicing rights			17,248				4,520
Net change in other assets			(422,496	)			(188,081	)
Net change in other liabilities			(165,881	)			16,229
Other, net			(42,154	)			(34,793	)
Net cash provided by (used in) operating activities			(381,022	)			155,922
Cash flows from investing activities
Proceeds from sales of investment securities available-for-sale			50,797				1,993,274
Proceeds from maturities of and principal collected on investment securities available-for-sale			1,646,241				398,989
Purchases of investment securities available-for-sale			(2,074,989	)			(1,424,344	)
Proceeds from maturities of and principal collected on investment securities held-to-maturity			22,643				11,945
Purchases of investment securities held-to-maturity			(27,428	)			(4,029	)
Redemption of Federal Home Loan Bank stock			344,014				162,011
Purchases of Federal Home Loan Bank stock			(202,000	)			(142,000	)
Proceeds from sales of loans and leases			530,734				566,880
Loan and lease originations and purchases, net of principal collected			(433,410	)			(674,459	)
Proceeds from sales of other assets			60,018				82,970
Purchases of premises and equipment and lease equipment			(75,885	)			(108,404	)
Net cash acquired (paid) in business combination			—				975,014
Other, net			23,456				(6,743	)
Net cash provided by (used in) investing activities			(135,809	)			1,831,104
Cash flows from financing activities
Net change in deposits			4,773,178				(15,296	)
Net change in short-term borrowings			(2,013,623	)			(17,292	)
Proceeds from long-term borrowings			4,956,373				2,799,986
Payments on long-term borrowings			(6,445,567	)			(3,838,454	)
Payments on liabilities related to acquisition and portfolio purchase			—				(1,000	)
Repurchases of common stock			(33,098	)			(58,804	)
Dividends paid on preferred stock			(7,481	)			(7,481	)
Dividends paid on common stock			(160,980	)			(102,368	)
Exercise of stock options			(110	)			—
Payments related to tax-withholding upon conversion of share-based awards			(4,104	)			(5,813	)
Net investment by (distribution to) non-controlling interest			(4,874	)			(4,547	)
Net cash provided by (used in) financing activities			1,059,714				(1,251,069	)
Net change in cash and due from banks			542,883				735,957
Cash and cash equivalents at beginning of period			1,228,371				587,057
Cash and cash equivalents at end of period		$	1,771,254			$	1,323,014
Supplemental disclosures of cash flow information
Cash paid (received) for:
Interest on deposits and borrowings		$	195,619			$	192,793
Income taxes, net			130,144				10,367
Noncash activities:
Transfer of loans and leases to other assets			38,938				73,314
Transfer of loans and leases from held-for-investment to held for sale, net			426,063				1,837,445

See accompanying notes to consolidated financial statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

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

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

TCF Bank operates banking centers 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 unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with GAAP. In the opinion of management, the accompanying unaudited consolidated financial statements contain all the significant adjustments, consisting of normal recurring items, considered necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Corporation’s most recent Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations at and for the year ended December 31, 2019.

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. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

Note 2. Merger

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

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

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

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

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

 

(Dollars in thousands)		TCF Financial Ownership and Market Value Table
		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

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

 

		Hypothetical Legacy TCF Ownership
		Number of Legacy TCF Outstanding Shares				Percentage Ownership
Legacy TCF shareholders			161,229,078				53.38	%
Chemical shareholders			140,835,967				46.62
Total			302,065,045				100.00	%

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

 

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

The following table provides the purchase price allocation as of the Merger Date and the assets acquired and liabilities assumed at their estimated fair value as of the Merger Date as recorded by the Corporation. The Corporation recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates are considered preliminary and subject to adjustment for up to one year after the Merger Date. While the Corporation believes that the information available at the Merger Date provided a reasonable basis for estimating fair value, following the 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 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 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 Merger Date.

As described in more detail in Note 3. Summary of Significant Accounting Policies below, all Chemical loans and leases were recorded at their estimated fair value as of the Merger Date with no carryover of the related allowance for loans 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 legacy GAAP 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 as the nonaccretable difference.

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

 

(In thousands)
PCI loans:
Contractually required payments receivable		$	413,176
Nonaccretable difference			(63,014	)
Expected cash flows			350,162
Accretable yield			38,479
Fair value of PCI loans		$	311,683
Purchased nonimpaired loans and leases:
Unpaid principal balance		$	15,636,020
Fair value discount			(234,304	)
Fair value at acquisition			15,401,716
Total fair value at acquisition		$	15,713,399

Other intangible assets consisted of core deposits and customer relationship intangibles with estimated fair values at the Merger Date of $138.2 million and $21.3 million, respectively. Core deposit intangibles are being amortized over a weighted-average life of ten years on an accelerated basis. Customer relationship intangibles are being amortized over a weighted-average life of 15.6 years based on expected economic benefits of the underlying intangible assets. The weighted-average life of amortizable intangibles acquired in the Merger was 11 years.

As a result of the 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.

Pro Forma Combined Results of Operations The following pro forma financial information presents the consolidated results of operations of Legacy TCF and Chemical as if the Merger had occurred as of January 1, 2019 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, amortization of the customer relationship intangibles, and amortization of the core deposit intangibles that would have resulted had the deposits been acquired as of January 1, 2019. Merger-related expenses incurred by TCF prior to completion of the 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 2019. Anticipated cost savings that have not yet been realized are also not reflected in the pro forma amounts for the three and nine months ended September 30, 2020 and 2019.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands, except per share data)		2020				2019				2020				2019
Net interest income and other noninterest income		$	495,977			$	536,165			$	1,545,834			$	1,654,571
Net income			55,738				125,560				131,401				435,003
Net income available to common shareholders			53,244				123,066				123,920				427,522
Earnings per share:
Basic		$	0.35			$	0.81			$	0.82			$	2.79
Diluted			0.35				0.81				0.82				2.77

Note 3. Summary of Significant Accounting Policies

Accounting policies in effect at December 31, 2019, as previously disclosed in “Note 3. Summary of Significant Accounting Policies” in the Corporation’s Annual Report on Form 10-K at and for the year ended December 31, 2019, remain significantly unchanged and have been followed similarly as in previous periods except for the allowance for credit losses accounting policy, the loans and leases acquired in a business combination accounting policy, the investments securities held-to-maturity accounting policy, and the investment securities available-for-sale accounting policy, resulting from the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs, as described below.

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. 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 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 historical loss rates, as well as adjustments for forward-looking information, including industry and macroeconomic forecasts. Management’s current methodology includes 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, current economic forecasts and measurement date credit risk characteristics such as product type, lien position, delinquency, collateral value, credit bureau scores and financial statement ratios. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly.

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.

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 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, the inputs to industry and macroeconomic forecasts and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance.

See “Note 8. Allowance for Credit Losses and Credit Quality” for further information.

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 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 and 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.

Investment Securities Held-to-Maturity

Investment securities held-to-maturity are carried at cost and adjusted for amortization of premiums or accretion of discounts using a level yield method; however, transfers of investment securities available-for-sale to investment securities held-to-maturity are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of each transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity investment security. Such amounts are then amortized over the remaining life of the transferred investment security as an adjustment of the yield on those securities. The Corporation evaluates investment securities held-to-maturity for 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 September 30, 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 September 30, 2020 there was no ACL recorded. See “Note 6. Investment Securities” for further information on investment securities available-for-sale.

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 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 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.”

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. 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 but Not Yet Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (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. 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. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

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

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 $1.8 billion and $1.2 billion at September 30, 2020 and December 31, 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 $103.9 million and $68.6 million at September 30, 2020 and December 31, 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:

 

(In thousands)		At September 30, 2020				At December 31, 2019
FHLB stock, at cost		$	176,459			$	318,473
FRB stock, at cost			123,985				123,967
Total investments		$	300,444			$	442,440

The investments in FHLB stock are required investments related to the Corporation’s membership and borrowings in 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 at September 30, 2020 and December 31, 2019.

Note 6. Investment Securities

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

 

		Investment Securities Available-for-sale, At Fair Value
(In thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
At September 30, 2020
Debt securities:
Obligations of states and political subdivisions		$	836,691			$	41,081			$	1,008			$	876,764
Government and government-sponsored enterprises			205,213				372				500				205,085
Mortgage-backed securities:
Residential agency			5,229,551				171,039				580				5,400,010
Residential non-agency			205,029				4,571				3				209,597
Commercial agency			671,387				40,373				180				711,580
Commercial non-agency			39,368				3,295				—				42,663
Total mortgage-backed debt securities			6,145,335				219,278				763				6,363,850
Corporate debt and trust preferred securities			453				11				—				464
Total investment securities available-for-sale		$	7,187,692			$	260,742			$	2,271			$	7,446,163
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 September 30, 2020
Residential agency mortgage-backed securities		$	166,594			$	10,262			$	207			$	176,649
Corporate debt and trust preferred securities			3,715				—				—				3,715
Total investment securities held-to-maturity (1)		$	170,309			$	10,262			$	207			$	180,364
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 September 30, 2020 there was no ACL for investment securities held-to-maturity.

Accrued interest receivable for investment securities was $23.1 million and $21.6 million at September 30, 2020 and December 31, 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 September 30, 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:
Obligations of states and political subdivisions		$	47,548			$	1,008			$	—			$	—			$	47,548			$	1,008
Government and government sponsored enterprises			100,992				500				—				—				100,992				500
Mortgage-backed securities:
Residential agency			177,611				580				—				—				177,611				580
Residential non-agency			3,691				3				—				—				3,691				3
Commercial agency			58,349				180				—				—				58,349				180
Commercial non-agency			—				—				—				—				—				—
Total mortgage-backed debt securities			239,651				763				—				—				239,651				763
Total investment securities available-for-sale		$	388,191			$	2,271			$	—			$	—			$	388,191			$	2,271
Investment securities held-to-maturity
Residential agency mortgage-backed securities			51,766				207				—				—				51,766				207
Total investment securities held-to-maturity		$	51,766			$	207			$	—			$	—			$	51,766			$	207