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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


     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:

                 

Obligations of states and political subdivisions

   $ 60,639      $ 687      $ —        $ —        $ 60,639      $ 687  

Government and government sponsored enterprises

     226,177        678        —          —          226,177        678  

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 September 30, 2020 there was no ACL for investment securities available-for-sale. At September 30, 2020 there were 144 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 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.

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

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Gross realized gains

   $ 2,309      $ 7,717      $ 2,309      $ 10,872  

Gross realized losses

     —          1,849        —          3,491  

Recoveries on previously impaired investment securities held-to-maturity

     15        32        23        36  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on investment securities

   $ 2,324      $ 5,900      $ 2,332      $ 7,417  
  

 

 

    

 

 

    

 

 

    

 

 

 


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

 

     At September 30, 2020      At December 31, 2019  

(In thousands)

   Amortized Cost      Fair Value      Amortized Cost      Fair Value  

Investment Securities Available-for-Sale

           

Due in one year or less

   $ 45,229      $ 45,518      $ 66,124      $ 66,112  

Due in 1-5 years

     171,134        176,145        191,364        192,065  

Due in 5-10 years

     664,743        703,227        547,813        555,523  

Due after 10 years

     6,306,586        6,521,273        5,833,976        5,906,301  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 7,187,692      $ 7,446,163      $ 6,639,277      $ 6,720,001  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment Securities Held-to-Maturity

           

Due in one year or less

   $ 400      $ 400      $ —        $ —    

Due in 1-5 years

   $ 3,150      $ 3,150      $ 3,550      $ 3,550  

Due in 5-10 years

     49        55        58        64  

Due after 10 years

     166,710        176,759        135,837        141,230  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 170,309      $ 180,364      $ 139,445      $ 144,844  
  

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2020 and December 31, 2019, investment securities with a carrying value of $1.2 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:

 

(In thousands)

   At September 30,
2020
     At December 31,
2019
 

Commercial loan and lease portfolio:

     

Commercial and industrial

   $ 11,557,237      $ 11,439,602  

Commercial real estate

     9,627,330        9,136,870  

Lease financing

     2,724,686        2,699,869  
  

 

 

    

 

 

 

Total commercial loan and lease portfolio

     23,909,253        23,276,341  
  

 

 

    

 

 

 

Consumer loan portfolio:

     

Residential mortgage

     5,790,251        6,179,805  

Home equity

     3,302,983        3,498,907  

Consumer installment

     1,341,204        1,542,411  
  

 

 

    

 

 

 

Total consumer loan portfolio

     10,434,438        11,221,123  
  

 

 

    

 

 

 

Total loans and leases(1)

   $ 34,343,691      $ 34,497,464  
  

 

 

    

 

 

 

 

(1)

Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $(174.2) million and $(201.5) million at September 30, 2020 and December 31, 2019, respectively.

Accrued interest receivable for loans and leases was $91.6 million and $106.5 million at September 30, 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 $423.0 million during the three months ended March 31, 2020, none of which qualified as PCD loans.

See “Note 3. Summary of Significant Accounting Policies” for further acquired loans and leases policy information.


Lease Income The components of total lease income were as follows:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Interest income—loans and leases:

           

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

   $ 32,696      $ 32,833      $ 100,655      $ 98,116  

Leasing revenue (noninterest income):

           

Lease income from operating lease payments

     23,542        25,492        71,243        76,388  

Profit recorded on commencement date on sales-type leases

     4,503        7,983        13,690        22,289  

Gains on sales of leased equipment

     3,860        6,115        17,709        18,355  
  

 

 

    

 

 

    

 

 

    

 

 

 

Leasing revenue

     31,905        39,590        102,642        117,032  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total lease income

   $ 64,601      $ 72,423      $ 203,297      $ 215,148  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 10. Loan Servicing Rights” for further information.

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Sale proceeds, net

   $ 667,807      $ 472,800      $ 1,802,193      $ 1,066,576  

Recorded investment in loans and leases sold, including accrued interest

     635,149        458,697        1,727,687        1,033,961  

Other

     (9,168      (20,087      (1,392      (19,241
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on sales of loans and leases

   $ 23,490      $ (5,984    $ 73,114      $ 13,374  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

(In thousands)

   At September 30, 2020      At December 31, 2019  

Interest-only strips

   $ 9,555      $ 12,813  
  

 

 

    

 

 

 

The Corporation recorded no impairment charges during the three months ended September 30, 2020 and $224 thousand of impairment charges on interest-only strips for the nine months ended September 30, 2020, and $22 thousand and $43 thousand of impairment charges for the three and nine months ended September 30, 2019, respectively.

The Corporation’s agreements to sell consumer loans typically contain certain representations, warranties and covenants regarding the loans sold or securitized. These representations, warranties and covenants generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer or investor, the loan’s compliance with the criteria set forth in the agreement, the manner in which the loans will be serviced, payment delinquency and compliance with applicable laws and regulations. These agreements generally require the repurchase of loans or indemnification of the purchaser in the event these representations are breached, 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 the three and nine months ended September 30, 2020 and 2019.

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 June 30, 2020 reflects this adoption, and historical financial information disclosed is in accordance with ASC Topic 310.


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 Loan and
Lease Losses
    Reserve for
Unfunded
Lending
Commitments(1)
    Total Allowance
for Credit
Losses
 

At or For the Three Months Ended September 30, 2020

          

Balance, beginning of period

   $ 157,685     $ 303,429     $ 461,114     $ 42,788     $ 503,902  

Charge-offs

     (5,768     (26,467     (32,235     —         (32,235

Recoveries

     3,698       3,961       7,659       —         7,659  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (2,070     (22,506     (24,576     —         (24,576
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     (20,835     99,158       78,323       (8,659     69,664  

Other

     357       11       368       —         368  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 135,137     $ 380,092     $ 515,229     $ 34,129     $ 549,358  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Three Months Ended September 30, 2019

          

Balance, beginning of period

   $ 70,711     $ 75,792     $ 146,503     $ 1,936     $ 148,439  

Charge-offs

     (14,098     (21,449     (35,547     —         (35,547

Recoveries

     5,330       1,639       6,969       —         6,969  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (8,768     (19,810     (28,578     —         (28,578
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     4,693       22,495       27,188       (342     26,846  

Other(3)

     (23,849     (46     (23,895     —         (23,895

Addition due to merger

     —         —         —         1,867       1,867  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 42,787     $ 78,431     $ 121,218     $ 3,461     $ 124,679  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Nine Months Ended September 30, 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

     (16,613     (40,309     (56,922     —         (56,922

Recoveries

     12,035       11,439       23,474       —         23,474  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (4,578     (28,870     (33,448     —         (33,448
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     3,449       225,990       229,439       15,894       245,333  

Other

     357       (163     194       —         194  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 135,137     $ 380,092     $ 515,229     $ 34,129     $ 549,358  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Nine Months Ended September 30, 2019

          

Balance, beginning of period

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

Charge-offs

     (43,922     (37,122     (81,044     —         (81,044

Recoveries

     15,840       3,890       19,730       —         19,730  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (28,082     (33,232     (61,314     —         (61,314
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses(2)

     16,644       34,235       50,879       166       51,045  

Other(3)

     (25,792     (1     (25,793     —         (25,793

Addition due to merger

     —         —         —         1,867       1,867  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 42,787     $ 78,431     $ 121,218     $ 3,461     $ 124,679  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.


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  
  

 

 

    

 

 

    

 

 

 

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  
  

 

 

    

 

 

    

 

 

 


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 September 30, 2020

                 

Commercial loan and lease portfolio:

                 

Commercial and industrial

   $ 11,357,324      $ 56,320      $ 3,101      $ 11,416,745      $ 140,492      $ 11,557,237  

Commercial real estate

     9,492,853        63,981        244        9,557,078        70,252        9,627,330  

Lease financing

     2,648,447        30,652        3,564        2,682,663        42,023        2,724,686  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     23,498,624        150,953        6,909        23,656,486        252,767        23,909,253  

Consumer loan portfolio:

                 

Residential mortgage

     5,700,715        22,954        1,347        5,725,016        65,235        5,790,251  

Home equity

     3,160,742        90,057        —          3,250,799        52,184        3,302,983  

Consumer installment

     1,329,989        4,680        —          1,334,669        6,535        1,341,204  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     10,191,446        117,691        1,347        10,310,484        123,954        10,434,438  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,690,070      $ 268,644      $ 8,256      $ 33,966,970      $ 376,721      $ 34,343,691  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.


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 September 30, 2020

   2020      2019      2018      2017      2016      2015
and Prior
 

Commercial loan and lease portfolio:

                          

Commercial and industrial

   $ 142      $ 86      $ —        $ 4      $ —        $ 2,468      $ 401      $ —        $ 3,101  

Commercial real estate

     —          —          —          —          —          244        —          —          244  

Lease financing

     139        906        697        1,308        482        32        —          —          3,564  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     281        992        697        1,312        482        2,744        401        —          6,909  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

     85        134        —          —          —          1,128        —          —          1,347  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     85        134        —          —          —          1,128        —          —          1,347  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total 90 days or more delinquent and accruing

   $ 366      $ 1,126      $ 697      $ 1,312      $ 482      $ 3,872      $ 401      $ —        $ 8,256  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
 

Commercial loan and lease portfolio:

                          

Commercial and industrial

   $ 3,739      $ 38,211      $ 34,112      $ 17,978      $ 12,395      $ 16,424      $ 17,629      $ 4      $ 140,492  

Commercial real estate

     —          1,079        11,937        11,618        8,810        36,808        —          —          70,252  

Lease financing

     1,810        9,695        12,289        7,204        4,532        4,863        100        1,530        42,023  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     5,549        48,985        58,338        36,800        25,737        58,095        17,729        1,534        252,767  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

     476        2,895        2,902        2,112        2,392        54,458        —          —          65,235  

Home equity

     675        1,604        458        341        211        4,502        43,360        1,033        52,184  

Consumer installment

     42        163        656        285        248        4,973        168        —          6,535  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     1,193        4,662        4,016        2,738        2,851        63,933        43,528        1,033        123,954  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

   $ 6,742      $ 53,647      $ 62,354      $ 39,538      $ 28,588      $ 122,028      $ 61,257      $ 2,567      $ 376,721  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


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

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2020      2019      2020      2019  

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

Commercial loan and lease portfolio:

                       

Commercial and industrial

   $ 119,338      $ 2,544      $ 36,761      $ 40      $ 97,153      $ 6,212      $ 40,550      $ 162  

Commercial real estate

     63,885        2,452        13,531        35        49,993        5,982        15,518        97  

Lease financing

     30,390        31        12,195        55        26,489        102        9,748        116  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     213,613        5,027        62,487        130        173,635        12,296        65,816        375  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                       

Residential mortgage

     66,498        769        41,788        68        51,906        2,133        40,963        205  

Home equity

     49,872        3,000        35,991        79        44,023        3,283        32,476        174  

Consumer installment

     4,102        143        4,634        —          3,625        209        4,608        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     120,472        3,912        82,413        147        99,554        5,625        78,047        379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

   $ 334,085      $ 8,939      $ 144,900      $ 277      $ 273,189      $ 17,921      $ 143,863      $ 754  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 receivable’s payment performance status, credit quality is also analyzed using credit risk classifications, 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 credit risk classifications also measure the quality of the borrower’s management and the repayment support offered by any guarantors. Loan and lease credit risk classifications are derived from standard regulatory rating definitions, which include: pass, special mention, substandard, doubtful and loss. Substandard and doubtful loans and leases have well-defined weaknesses, but may never result in a loss.


The 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)
     Total  

At September 30, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
 

Commercial loan and lease portfolio:

                          

Commercial and industrial

                          

Pass

   $ 3,046,289      $ 2,070,267      $ 1,165,510      $ 650,511      $ 412,527      $ 354,391      $ 3,173,255      $ 45,162      $ 10,917,912  

Special mention

     9,996        55,414        34,345        44,613        14,564        13,127        142,520        —          314,579  

Substandard

     7,238        51,459        88,920        36,442        19,116        23,474        97,984        113        324,746  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial

     3,063,523        2,177,140        1,288,775        731,566        446,207        390,992        3,413,759        45,275        11,557,237  

Commercial real estate

                          

Pass

     930,314        2,152,099        1,932,737        1,371,335        784,174        1,672,418        —          —          8,843,077  

Special mention

     289        100,532        55,678        168,496        62,608        102,896        —          —          490,499  

Substandard

     1,056        5,129        34,754        119,637        43,004        90,174        —          —          293,754  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     931,659        2,257,760        2,023,169        1,659,468        889,786        1,865,488        —          —          9,627,330  

Lease financing

                          

Pass

     718,133        797,020        449,720        270,567        143,098        47,280        31,963        172,653        2,630,434  

Special mention

     2,703        11,432        4,687        5,731        2,469        1,658        3,837        5,299        37,816  

Substandard

     5,428        11,672        15,082        9,305        5,501        5,926        418        3,104        56,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total lease financing

     726,264        820,124        469,489        285,603        151,068        54,864        36,218        181,056        2,724,686  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     4,721,446        5,255,024        3,781,433        2,676,637        1,487,061        2,311,344        3,449,977        226,331        23,909,253  

Consumer loan portfolio:

                          

Residential mortgage

                          

Pass

     1,024,652        1,243,341        743,949        507,124        497,004        1,702,326        —          —          5,718,396  

Special mention

     —          —          —          —          161        214        —          —          375  

Substandard

     677        3,076        3,387        2,488        3,173        58,679        —          —          71,480  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total residential mortgage

     1,025,329        1,246,417        747,336        509,612        500,338        1,761,219        —          —          5,790,251  

Home equity

                          

Pass

     24,496        56,729        54,356        44,760        32,586        146,650        2,871,820        8,501        3,239,898  

Substandard

     698        1,753        580        483        569        7,181        50,379        1,442        63,085  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity

     25,194        58,482        54,936        45,243        33,155        153,831        2,922,199        9,943        3,302,983  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer installment

                          

Pass

     198,591        407,891        211,270        209,484        141,032        139,869        26,018        70        1,334,225  

Substandard

     397        1,262        1,382        1,062        547        1,860        469        —          6,979  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer installment

     198,988        409,153        212,652        210,546        141,579        141,729        26,487        70        1,341,204  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     1,249,511        1,714,052        1,014,924        765,401        675,072        2,056,779        2,948,686        10,013        10,434,438  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases

   $ 5,970,957      $ 6,969,076      $ 4,796,357      $ 3,442,038      $ 2,162,133      $ 4,368,123      $ 6,398,663      $ 236,344      $ 34,343,691  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

This balance includes $36.2 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 $226.3 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.


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  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

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

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases

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

 

 

    

 

 

    

 

 

    

 

 

 

Troubled Debt Restructurings In certain circumstances, the Corporation may consider modifying the terms of a loan for economic or legal reasons related to the customer’s financial difficulties. If the Corporation grants a concession, the modified loan would generally be classified as a TDR. However, Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications provide banks the option to temporarily suspend the application of TDR accounting guidance for loans modified due to the effects of COVID-19 when certain conditions are met. See “Note 3. Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for information regarding recent updated guidance on TDR accounting provided by the CARES Act and Interagency guidance. TDRs typically involve a deferral of the principal balance of the loan, a reduction of the stated interest rate of the loan or, in certain limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest.

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

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2020      2019      2020      2019  

(In thousands)

   Pre-
modification
Investment
     Post-
modification
Investment
     Pre-
modification
Investment
     Post-
modification
Investment
     Pre-
modification
Investment
     Post-
modification
Investment
     Pre-
modification
Investment
     Post-
modification
Investment
 

Commercial loan and lease portfolio:

                       

Commercial and industrial

   $ 5,378      $ 5,344      $ —        $ —        $ 10,742      $ 10,709      $ —        $ —    

Commercial real estate

     29,735        29,735        —          —          32,267        32,177        31,518        31,518  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     35,113        35,079        —          —          43,009        42,886        31,518        31,518  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                       

Residential mortgage

     4,994        4,994        1,724        1,723        10,423        10,423        4,023        4,016  

Consumer installment

     88        88        —          —          481        391        —          —    

Home equity

     2,796        2,796        1,115        1,115        4,553        4,494        3,589        3,577  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     7,878        7,878        2,839        2,838        15,457        15,308        7,612        7,593  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 42,991      $ 42,957      $ 2,839      $ 2,838      $ 58,466      $ 58,194      $ 39,130      $ 39,111  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents TDR loans:

 

     At September 30, 2020      At December 31, 2019  

(In thousands)

   Accruing
TDR Loans
     Nonaccrual
TDR Loans
     Total
TDR Loans
     Accruing
TDR Loans
     Nonaccrual
TDR Loans
     Total
TDR Loans
 

Commercial loan and lease portfolio

   $ 36,947      $ 13,250      $ 50,197      $ 12,986      $ 5,356      $ 18,342  

Consumer loan portfolio

     17,956        21,526        39,482        12,403        14,875        27,278  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 54,903      $ 34,776      $ 89,679      $ 25,389      $ 20,231      $ 45,620  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $1.3 million and $638 thousand at September 30, 2020 and December 31, 2019, respectively.

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

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 

(In thousands)

   2020      2019      2020      2019  

Defaulted TDR loan balances modified during the applicable period

           

Commercial loan and lease portfolio:

           

Commercial and industrial

   $ 60      $ —        $ 283      $ 297  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

           

Residential mortgage

     265        212        1,404        964  

Home equity

     170        82        426        328  

Consumer installment

     35        452        50        1,555  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     470        746        1,880        2,847  
  

 

 

    

 

 

    

 

 

    

 

 

 

Defaulted TDR loan balances

   $ 530      $ 746      $ 2,163      $ 3,144  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

(In thousands)

   At September 30,
2020
     At December 31,
2019
 

Other real estate owned

   $ 35,554      $ 34,256  

Repossessed and returned assets

     11,104        8,045  

Consumer loans in process of foreclosure

     14,555        17,758  
  

 

 

    

 

 

 

Other real estate owned and repossessed and returned assets were written down $1.1 million and $2.3 million, and $2.3 million and $5.5 million during the three and nine months ended September 30, 2020 and September 30, 2019, respectively, and were included in other assets on the Consolidated Statements of Financial Condition.

Note 9. Goodwill

Goodwill was as follows:

 

(In thousands)

   At September 30, 2020      At December 31, 2019  

Goodwill related to consumer banking segment

   $ 771,555      $ 764,389  

Goodwill related to commercial banking segment

     541,491        535,489  
  

 

 

    

 

 

 

Goodwill, net

   $ 1,313,046      $ 1,299,878  
  

 

 

    

 

 

 

The Corporation recorded goodwill in the amount of $1.2 billion related to the merger with Legacy TCF completed on August 1, 2019. Goodwill was allocated to the appropriate reporting unit based on the relative fair value of assets acquired and deposits held by the reporting unit. This methodology allocates goodwill in proportion to the assets held by each reporting unit as well as incorporating the value of the funding source provided by the in place deposits. The reporting units aggregate between the Consumer Banking and Commercial Banking segments. See “Note 2. Merger” for further information. There was no impairment of goodwill for the three and nine months ended September 30, 2020 and 2019.


Note 10. Loan Servicing Rights

Information regarding LSRs was as follows:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Balance, beginning of period

   $ 38,816      $ 18      $ 56,313      $ 23  

Acquired in the Merger

     —          59,567        —          59,567  

New servicing assets created

     5,280        1,906        11,238        1,906  

Impairment (charge) recovery

     (154      (4,520      (17,248      (4,520

Amortization

     (5,689      (1,670      (12,050      (1,675
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 38,253      $ 55,301      $ 38,253      $ 55,301  
  

 

 

    

 

 

    

 

 

    

 

 

 

Valuation allowance, end of period

   $ (21,131    $ (4,520    $ (21,131    $ (4,520
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans serviced for others that have servicing rights capitalized, end of period

   $ 6,179,464      $ 6,647,153      $ 6,179,464      $ 6,647,153  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loan servicing, late fee and other ancillary fee income, included in servicing fee income, related to loans serviced for others that have servicing rights capitalized was $4.1 million and $12.4 million for the three and nine months ended September 30, 2020, respectively, and $2.8 million for both the three and nine months ended September 30, 2019.

Note 11. Investments in Qualified Affordable Housing Projects and Federal Historic Projects

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

Under the proportional amortization method, the Corporation amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits. The Corporation recognized amortization expense of investments in qualified affordable housing projects of $5.2 million and $15.6 million for the three and nine months ended September 30, 2020, respectively, and $3.6 million and $8.5 million for the three and nine months ended September 30, 2019, respectively. Amortization expense was more than offset by tax credits and other benefits of $6.5 million and $19.4 million for the three and nine months ended September 30, 2020, respectively, and $4.5 million and $10.5 million for the three and nine months ended September 30, 2019, respectively. The Corporation’s remaining investment in qualified affordable housing projects totaled $219.9 million and $195.8 million at September 30, 2020 and December 31, 2019, respectively.

Under the equity method, the Corporation’s share of the earnings or losses is included in other noninterest expense. The Corporation’s remaining investment in the federal historic projects and Ohio historic preservation tax credits totaled $52.4 million and $43.6 million at September 30, 2020 and December 31, 2019, respectively. During the three months ended September 30, 2020, $0.5 million of income tax benefit was recognized due to the federal historic tax credits, which was partially offset by amortization expense, inclusive of impairment, of $0.4 million. During the nine months ended September 30, 2020, $1.1 million of income tax benefit was recognized due to the federal historic tax credits, which was partially offset by amortization expense, inclusive of impairment, of $0.8 million. During the three months ended September 30, 2020, the amount of state tax credits recognized, inclusive of impairment, was $0.4 million. During the nine months ended September 30, 2020, the amount of state tax credits recognized, inclusive of impairment, was $0.9 million.

The Corporation’s unfunded equity contributions relating to investments in qualified affordable housing projects and federal historic projects are included in other liabilities. The Corporation’s remaining unfunded equity contributions totaled $134.2 million and $131.3 million at September 30, 2020 and December 31, 2019, respectively.

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


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

Note 12. Borrowings

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

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

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

 

     At September 30, 2020     At December 31, 2019  

(Dollars in thousands)

   Amount      Weighted-
average Rate
    Amount      Weighted-
average Rate
 

FHLB advances

   $ 400,000        0.37   $ 2,450,000        1.85

Collateralized Deposits

     253,959        0.14       219,145        0.64  

Line-of-Credit—TCF Commercial Finance Canada, Inc.

     1,502        1.50       —          —    
  

 

 

    

 

 

   

 

 

    

 

 

 

Total short-term borrowings

   $ 655,461        0.28     $ 2,669,145        1.75  
  

 

 

    

 

 

   

 

 

    

 

 

 

On June 29, 2020, TCF Financial voluntarily prepaid the outstanding $80.0 million on its $150.0 million unsecured 364-day revolving credit facility with an unaffiliated bank and subsequently closed the credit facility.

Long-term borrowings were as follows:

 

(In thousands)

   At September 30,
2020
     At December 31,
2019
 

FHLB advances

   $ 210,372      $ 1,822,058  

Subordinated debt obligations

     586,729        428,470  

Discounted lease rentals

     71,738        100,882  

Finance lease obligation

     3,006        3,038  
  

 

 

    

 

 

 

Total long-term borrowings

   $ 871,845      $ 2,354,448  
  

 

 

    

 

 

 

On May 6, 2020, TCF Bank issued $150.0 million of fixed-to-floating rate subordinated notes (the “2030 Notes”) at par. The fixed-to-floating rate subordinated notes, due May 6, 2030, bear an initial fixed interest rate of 5.50% per annum, payable semi-annually in arrears on May 6 and November 6, commencing on November 6, 2020. The 2030 Notes are redeemable at TCF Bank’s option beginning on May 6, 2025. Commencing May 6, 2025, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR rate plus 509 basis points, payable quarterly in arrears on February 6, May 6, August 6 and November 6. TCF Bank incurred issuance costs of $1.6 million that are amortized as interest expense over the full term of the 2030 Notes using the effective interest method.

At September 30, 2020, TCF Bank had pledged $14.0 billion of loans secured by consumer and commercial real estate to provide borrowing capacity from the FHLB.

At September 30, 2020, TCF Bank had pledged $2.5 billion of loans secured by assets to provide borrowing capacity from the Federal Reserve Bank discount window. No borrowings were sourced from this facility at September 30, 2020.


The contractual maturities of long-term borrowings at September 30, 2020 were as follows:

 

(In thousands)

      

Remainder of 2020

   $ 501  

2021

     10,955  

2022

     135,533  

2023

     24,055  

2024

     8,806  

Thereafter

     691,995  

Total long-term borrowings

   $ 871,845  
  

 

 

 

Note 13. Accumulated Other Comprehensive Income (Loss)

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

 

     Three Months Ended September 30,  
     2020     2019  

(In thousands)

   Before Tax     Tax Effect     Net of Tax     Before Tax     Tax Effect     Net of Tax  

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

            

Net unrealized gains (losses) arising during the period

   $ (8,489   $ 1,992     $ (6,497   $ 24,236     $ (5,606   $ 18,630  

Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:

            

Total interest income

     777       (183     594       844       (205     639  

Net gains (losses) on investment securities

     (2,309     542       (1,767     —         —         —    

Other noninterest expense

     (32     8       (24     (53     14       (39
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reclassified from accumulated other comprehensive income (loss)

     (1,564     367       (1,197     791       (191     600  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (10,053     2,359       (7,694     25,027       (5,797     19,230  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recognized postretirement prior service cost:

            

Reclassification of amortization of prior service cost to other noninterest expense

     (12     3       (9     (12     3       (9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustment(1)

     3,721       —         3,721       (1,968     —         (1,968
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized gains (losses) on net investment hedges

     (3,469     814     $ (2,655     2,170       (529     1,641  

Total other comprehensive income (loss)

   $ (9,813   $ 3,176     $ (6,637   $ 25,217     $ (6,323   $ 18,894  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended September 30,  
     2020     2019  

(In thousands)

   Before Tax     Tax Effect     Net of Tax     Before Tax     Tax Effect     Net of Tax  

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

            

Net unrealized gains (losses) arising during the period

   $ 180,391     $ (42,562   $ 137,829     $ 114,263     $ (27,519   $ 86,744  

Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:

            

Total interest income

     3,156       (741     2,415       2,495       (607     1,888  

Net gains (losses) on investment securities

     (2,309     542       (1,767     (1,513     368       (1,145

Other noninterest expense

     95       (22     73       (350     86       (264
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reclassified from accumulated other comprehensive income (loss)

     942       (221     721       632       (153     479  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     181,333       (42,783     138,550       114,895       (27,672     87,223  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recognized postretirement prior service cost:

            

Reclassification of amortization of prior service cost to other noninterest expense

     (35     8       (27     (35     10       (25
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustment(1)

     (4,298     —         (4,298     5,014       —         5,014  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized gains (losses) on net investment hedges

     4,272       (1,003     3,269       (3,761     915       (2,846
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

   $ 181,272     $ (43,778   $ 137,494     $ 116,113     $ (26,747   $ 89,366  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

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


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

 

(In thousands)

   Net Unrealized
Gains (Losses) on
Available-for-Sale
Investment
Securities and
Interest-
only Strips
    Net Unrealized
Gains
(Losses) on
Net
Investment
Hedges
    Foreign
Currency
Translation
Adjustment
    Recognized
Postretirement
Prior
Service Cost
    Total  

At or For the Three Months Ended September 30, 2020

          

Balance, beginning of period

   $ 202,342     $ 15,724     $ (19,716   $ 58     $ 198,408  

Other comprehensive income (loss)

     (6,497     (2,655     3,721       —         (5,431

Amounts reclassified from accumulated other comprehensive income (loss)

     (1,197     —         —         (9     (1,206
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     (7,694     (2,655     3,721       (9     (6,637
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 194,648     $ 13,069     $ (15,995   $ 49     $ 191,771  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Three Months Ended September 30, 2019

          

Balance, beginning of period

   $ 39,971     $ 10,499     $ (13,229   $ 93     $ 37,334  

Other comprehensive income (loss)

     18,630       1,641       (1,968     —         18,303  

Amounts reclassified from accumulated other comprehensive income (loss)

     600       —         —         (9     591  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     19,230       1,641       (1,968     (9     18,894  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 59,201     $ 12,140     $ (15,197   $ 84     $ 56,228  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Nine Months Ended September 30, 2020

          

Balance, beginning of period

   $ 56,098     $ 9,800     $ (11,697   $ 76     $ 54,277  

Other comprehensive income (loss)

     137,829       3,269       (4,298     —         136,800  

Amounts reclassified from accumulated other comprehensive income (loss)

     721       —         —         (27     694  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     138,550       3,269       (4,298     (27     137,494  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 194,648     $ 13,069     $ (15,995   $ 49     $ 191,771  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Nine Months Ended September 30, 2019

          

Balance, beginning of period

   $ (28,022   $ 14,986     $ (20,211   $ 109     $ (33,138

Other comprehensive income (loss)

     86,744       (2,846     5,014       —         88,912  

Amounts reclassified from accumulated other comprehensive income (loss)

     479       —         —         (25     454  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     87,223       (2,846     5,014       (25     89,366  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 59,201     $ 12,140     $ (15,197   $ 84     $ 56,228  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 14. Regulatory Capital Requirements

TCF and TCF Bank are subject to minimum capital requirements administered by the federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal banking regulators that could have a material adverse effect on TCF. In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained earnings for the current year combined with its net retained earnings for the preceding two calendar years, which was $73.6 million at September 30, 2020, without prior approval of the Office of the Comptroller of the Currency (“OCC”). The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. TCF Bank’s ability to make capital distributions in the future may require regulatory approval and may be restricted by its federal banking regulators. TCF Bank’s ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. In the future, these capital adequacy standards may be higher than existing minimum regulatory capital requirements.

The Basel III capital standards allowed institutions not subject to the advanced approaches requirements to opt out of including components of accumulated other comprehensive income (loss) in common equity Tier 1 capital. TCF and TCF Bank made the one-time permanent election to not include accumulated other comprehensive income (loss) in regulatory capital.


Effective January 1, 2020, the Corporation adopted CECL. 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 two 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.

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

 

     TCF     TCF Bank  

(Dollars in thousands)

   At September
30, 2020
    At December
31, 2019
    At September
30, 2020
    At December
31, 2019
    Well-
capitalized
Standard
    Minimum
Capital
Requirement(1)
 

Regulatory Capital:

            

Common equity Tier 1 capital

   $ 4,053,931     $ 4,050,826     $ 4,029,278     $ 4,039,191      

Tier 1 capital

     4,244,609       4,236,648       4,050,654       4,059,417      

Total capital

     4,972,715       4,681,630       4,769,055       4,524,051      

Regulatory Capital Ratios:

            

Common equity Tier 1 capital ratio

     11.45     10.99     11.39     10.97     6.50     7.00

Tier 1 risk-based capital ratio

     11.98       11.49       11.45       11.03       8.00       8.50  

Total risk-based capital ratio

     14.04       12.70       13.48       12.29       10.00       10.50  

Tier 1 leverage ratio

     8.83       9.49       8.43       9.10       5.00       4.00  

 

(1)

Excludes capital conservation buffer of 2.5% at both September 30, 2020 and December 31, 2019.

Note 15. Derivative Instruments

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

 

     At September 30, 2020  
            Fair Value  

(In thousands)

   Notional Amount(1)      Derivative Assets      Derivative Liabilities  

Derivatives designated as hedging instruments

        

Interest rate contract

   $ 150,000      $ —        $ 84  

Forward foreign exchange contracts

     196,852        2,237        85  
  

 

 

    

 

 

    

 

 

 

Total derivatives designated as hedging instruments

      $ 2,237      $ 169  
     

 

 

    

 

 

 

Derivatives not designated as hedging instruments

        

Interest rate contracts

   $ 5,773,205      $ 279,710      $ 14,001  

Risk participation agreements

     445,120        163        171  

Forward foreign exchange contracts

     95,052        537        125  

Interest rate lock commitments

     579,456        18,596        4  

Forward loan sales commitments

     805,887        117        786  

Power Equity CDs

     21,958        442        443  

Swap agreement

     12,652        —          141  
  

 

 

    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

      $ 299,565      $ 15,671  
     

 

 

    

 

 

 

Total derivatives before netting

        301,802        15,840  

Netting(2)

        (2,861      498  
     

 

 

    

 

 

 

Total derivatives, net

      $ 298,941      $ 16,338  
     

 

 

    

 

 

 

 

(1)

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

(2)

Includes netting of derivative asset and liability balances and related cash collateral, where counterparty netting agreements are in place.


     At December 31, 2019  
            Fair Value  

(In thousands)

   Notional Amount(1)      Derivative Assets      Derivative Liabilities  

Derivatives designated as hedging instruments

        

Interest rate contract

   $ 150,000      $ —        $ 168  

Forward foreign exchange contracts

     177,593        —          3,251  
  

 

 

    

 

 

    

 

 

 

Total derivatives designated as hedging instruments

      $ —        $ 3,419  
  

 

 

    

 

 

    

 

 

 

Derivatives not designated as hedging instruments

        

Interest rate contracts

   $ 5,095,969      $ 102,893      $ 5,872  

Risk participation agreements

     316,353        202        354  

Forward foreign exchange contracts

     262,656        —          3,268  

Interest rate lock commitments

     158,111        2,772        20  

Forward loan sales commitments

     174,013        41        289  

Power Equity CD

     29,009        734        734  

Swap agreement

     12,652        —          356  
  

 

 

    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

      $ 106,642      $ 10,893  
     

 

 

    

 

 

 

Total derivatives before netting

      $ 106,642      $ 14,312  

Netting(2)

        (540      (5,109
     

 

 

    

 

 

 

Total derivatives, net

      $ 106,102      $ 9,203  
     

 

 

    

 

 

 

 

(1)

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

(2)

Includes netting of derivative asset and liability balances and related cash collateral, where counterparty netting agreements are in place.

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

 

     At September 30, 2020  

(In thousands)

   Gross Amounts
Recognized
     Gross Amounts
Offset(1)
     Net Amount
Presented
 

Derivative assets

        

Interest rate contracts

   $ 279,710      $ —        $ 279,710  

Risk participation agreements

     163        —          163  

Forward foreign exchange contracts

     2,774        (2,740      34  

Interest rate lock commitments

     18,596        (4      18,592  

Forward loan sales commitments

     117        (117      —    

Power Equity CDs

     442        —          442  
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 301,802      $ (2,861    $ 298,941  
  

 

 

    

 

 

    

 

 

 

Derivative liabilities

        

Interest rate contracts

   $ 14,085      $ —        $ 14,085  

Risk participation agreements

     171        —          171  

Forward foreign exchange contracts

     210        760        970  

Interest rate lock commitments

     4        (4      —    

Forward loan sales commitments

     786        (117      669  

Power Equity CDs

     443        —          443  

Swap agreement

     141        (141      —    
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

   $ 15,840      $ 498      $ 16,338  
  

 

 

    

 

 

    

 

 

 

 

(1)

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


     At December 31, 2019  

(In thousands)

   Gross Amounts
Recognized
     Gross Amounts
Offset(1)
     Net Amount
Presented
 

Derivative assets

        

Interest rate contracts

   $ 102,893      $ (492    $ 102,401  

Risk participation agreements

     202        —          202  

Forward foreign exchange contracts

     —          —          —    

Interest rate lock commitments

     2,772        (7      2,765  

Forward loan sales commitments

     41        (41      —    

Power Equity CDs

     734        —          734  
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 106,642      $ (540    $ 106,102  
  

 

 

    

 

 

    

 

 

 

Derivative liabilities

        

Interest rate contracts

   $ 6,040      $ (491    $ 5,549  

Risk participation agreements

     354        —          354  

Forward foreign exchange contracts

     6,519        (4,214      2,305  

Interest rate lock commitments

     20        (7      13  

Forward loan sales commitments

     289        (41      248  

Power Equity CD

     734        —          734  

Swap agreement

     356        (356      —    
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

   $ 14,312      $ (5,109    $ 9,203  
  

 

 

    

 

 

    

 

 

 

 

(1)

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

Derivatives Designated as Hedging Instruments

Interest rate contract: The carrying amount of the hedged subordinated debt, including the cumulative basis adjustment related to the application of fair value hedge accounting, is recorded in long-term borrowings on the Consolidated Statements of Financial Condition and was as follows:

 

     Carrying Amount
of the Hedged Liability
     Cumulative Amount of
Fair Value Hedging Adjustments
Included in the Carrying Amount
of the Hedged Liability
 

(In thousands)

   At September 30,
2020
     At December 31,
2019
     At September 30,
2020
     At December 31,
2019
 

Subordinated bank note—2025

   $ 160,694      $ 151,454      $ 11,840      $ 2,773  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes the effect of fair value hedge accounting on the Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019.

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Statement of income line where the gain (loss) on the fair value hedge was recorded:

           

Interest expense on borrowings

   $ 11,429      $ 17,115      $ 51,147      $ 48,050  

Gain (loss) on interest rate contract (fair value hedge)

           

Hedged item

     680        (2,100      (9,068      (8,847

Derivative designated as a hedging instrument

     (731      2,195        9,134        8,938  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gain (loss) on interest rate contract recognized in interest expense on borrowings

   $ (51    $ 95      $ 66      $ 91  
  

 

 

    

 

 

    

 

 

    

 

 

 


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

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Forward foreign exchange contracts

   $ (3,469    $ 2,170      $ 4,272      $ (3,761
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

          Three Months Ended September 30,     Nine Months Ended September 30,  

(In thousands)

  

Location of Gain (Loss)

   2020     2019     2020     2019  

Interest rate contracts(1)

   Other noninterest income    $ (2,314   $ (20,085   $ 3,459     $ (21,345

Risk participation agreements

   Other noninterest expense      (310     321       (523     38  

Forward foreign exchange contracts

   Other noninterest expense      (1,606     3,307       9,615       (5,302

Interest rate lock commitments

   Net gains on sales of loans and leases      68       337       15,840       1,117  

Forward loan sales commitments

   Net gains on sales of loans and leases      3,881       (11     (421     (11

Swap agreement

   Other noninterest income      —         4       (1     4  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) recognized

      $ (281   $ (16,127   $ 27,969     $ (25,499
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Included in both the three and nine months ended September 30, 2019 is a loss of $17.3 million related to the termination of $1.1 billion of interest rate swaps.

At September 30, 2020 and December 31, 2019, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $26.3 million and $23.1 million, respectively. In the event the Corporation is rated less than BB- by Standard and Poor’s, the contracts could be terminated or the Corporation may be required to provide approximately $526 thousand and $462 thousand in additional collateral at September 30, 2020 and December 31, 2019, respectively. There were no forward foreign exchange contracts containing credit risk-related features in a liability position at both September 30, 2020 and December 31, 2019.

At September 30, 2020, the Corporation had posted $67.9 million and $0.8 million of cash collateral related to its interest rate contracts and forward foreign exchange contracts, respectively, and received $3.5 million of cash collateral related to its forward foreign exchange contracts.

Note 16. Fair Value Measurements

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


The Corporation groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the degree and reliability of estimates and assumptions used to determine fair value. The levels are as follows:

 

Level 1    Valuations that are based on prices obtained from independent pricing sources for the same instruments traded in active markets.
Level 2    Valuations that are based on prices obtained from independent pricing sources that are based on observable transactions of similar instruments, but not quoted markets.
Level 3    Valuations generated from model-based techniques that use at least one significant unobservable input. Such unobservable inputs reflect estimates of assumptions that market participants would use in pricing the asset or liability.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale: The fair value of investment securities available-for-sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and comparisons to current market trading activity.

Loans Held-for-Sale: The Corporation has elected the fair value option for residential mortgage loans held-for-sale. Accordingly, the fair values of residential mortgage loans held-for-sale are based on valuation models that use the market price for similar loans sold in the secondary market. As these prices are derived from market observable inputs, they are categorized as Level 2.

Interest-only Strips: The fair value of interest-only strips, categorized as Level 3, represents the present value of future cash flows expected to be received by the Corporation on certain assets. The Corporation uses available market data, along with its own empirical data and discounted cash flow models, to arrive at the fair value of its interest-only strips. The present value of the estimated expected future cash flows to be received is determined by using discount, loss and prepayment rates that the Corporation believes are commensurate with the risks associated with the cash flows and what a market participant would use. These assumptions are inherently subject to volatility and uncertainty and, as a result, the fair value of the interest-only strips may fluctuate significantly from period to period. Unobservable inputs used to value the interest-only strips include a discount rate of 14% (weighted average) and prepayment rates of 4% (weighted average).

Derivative Instruments:

Interest Rate Contracts: The Corporation executes interest rate contracts as described in “Note 15. Derivative Instruments.” The fair value of these interest rate contracts, categorized as Level 2, is determined using a cash flow model which may consider the forward curve, the discount curve, option volatilities and credit valuation adjustments related to counterparty and/or borrower non-performance risk.

Risk Participation Agreements: The fair value of risk participation agreements, categorized as Level 2, is determined using a cash flow model which may consider the forward curve, the discount curve, option volatilities and credit valuation adjustments related to counterparty and/or borrower nonperformance risk.

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

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


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

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

Forward Loan Sales Commitments: The Corporation enters into forward loan sales commitments to sell certain mortgage loans which are recorded at fair value based on valuation models. The Corporation’s expectation of the amount of its interest rate lock commitments that will ultimately close is a factor in determining the position. The valuation models utilize the fair value of related mortgage loans determined using observable market data and therefore the commitments are categorized as Level 2.

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

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

 

     September 30, 2020  

(In thousands)

   Level 1      Level 2      Level 3      Total  

Assets

           

Investment securities available-for-sale

   $ —        $ 7,445,696      $ 467      $ 7,446,163  

Loans held-for-sale

     —          460,172        —          460,172  

Interest-only strips

     —          —          9,555        9,555  

Derivative assets:(1)

           

Interest rate contracts

     —          279,710        —          279,710  

Risk participation agreements

     —          163        —          163  

Forward foreign exchange contracts

     —          2,774        —          2,774  

Interest rate lock commitments

     —          18,596        —          18,596  

Forward loan sales commitments

     —          117        —          117  

Power Equity CDs

     —          442        —          442  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative assets

     —          301,802        —          301,802  

Assets held in trust for deferred compensation plans

     46,210        —          —          46,210  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 46,210      $ 8,207,670      $ 10,022      $ 8,263,902  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative liabilities:(1)

           

Interest rate contracts

   $ —        $ 14,085      $ —        $ 14,085  

Risk participation agreements

     —          171        —          171  

Forward foreign exchange contracts

     —          210        —          210  

Interest rate lock commitments

     —          4        —          4  

Forward loan sales commitments

     —          786        —          786  

Power Equity CDs

     —          443        —          443  

Swap agreement

     —          —          141        141  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative liabilities

     —          15,699        141        15,840  

Liabilities held in trust for deferred compensation plans

     46,210        —          —          46,210  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 46,210      $ 15,699      $ 141      $ 62,050  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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


     December 31, 2019  

(In thousands)

   Level 1      Level 2      Level 3      Total  

Assets

           

Investment securities available-for-sale

   $ —        $ 6,719,568      $ 433      $ 6,720,001  

Loans held-for-sale

     —          91,202        —          91,202  

Interest-only strips

     —          —          12,813        12,813  

Derivative assets:(1)

           

Interest rate contracts

     —          102,893        —          102,893  

Risk participation agreements

     —          202        —          202  

Interest rate lock commitments

     —          2,772        —          2,772  

Forward loan sales commitments

     —          41        —          41  

Power Equity CDs

     —          734        —          734  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative assets

     —          106,642        —          106,642  

Forward loan sales commitments, non-derivative

     —          46        —          46  

Assets held in trust for deferred compensation plans

     43,743        —          —          43,743  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 43,743      $ 6,917,458      $ 13,246      $ 6,974,447  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative liabilities:(1)

           

Interest rate contracts

   $ —        $ 6,040      $ —        $ 6,040  

Risk participation agreements

     —          354        —          354  

Forward foreign exchange contracts

     —          6,519        —          6,519  

Interest rate lock commitments

     —          20        —          20  

Forward loan sales commitments

     —          289        —          289  

Power Equity CDs

     —          734        —          734  

Swap agreement

     —          —          356        356  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative liabilities

     —          13,956        356        14,312  

Liabilities held in trust for deferred compensation plans

     43,743        —          —          43,743  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 43,743      $ 13,956      $ 356      $ 58,055  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

Management assesses the appropriate classification of financial assets and liabilities within the fair value hierarchy by monitoring the level of available observable market information. Changes in markets or economic conditions, as well as changes to the valuation models, may require the transfer of financial instruments from one fair value level to another. Such transfers, if any, are recorded at the fair values as of the beginning of the quarter in which the transfers occurred.


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

 

(In thousands)

   Investment
securities
available-
for-sale
    Loans
held-for-
sale
    Interest-
only
strips
    Interest rate
lock
commitments
    Swap
agreement
    Forward loan
sales
commitments
 

At or For the Three Months Ended September 30, 2020

            

Asset (liability) balance, beginning of period

   $ 441     $ —       $ 11,811     $ —       $ (213   $ —    

Total net gains (losses) included in:

            

Net income

     1       —         277       —         —         —    

Other comprehensive income (loss)

     25       —         (1,211     —         —         —    

Principal paydowns / settlements

     —         —         (1,322     —         72       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asset (liability) balance, end of period

   $ 467     $ —       $ 9,555     $ —       $ (141   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) included in other comprehensive income for assets held at the end of the period

   $ 25     $ —       $ (1,211   $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Three Months Ended September 30, 2019

            

Asset (liability) balance, beginning of period

   $ 3     $ 29,211     $ 15,236     $ 1,402     $ (435   $ (145

Transfers out of Level 3(1)

     —         (29,211     —         (1,402     —         145  

Total net gains (losses) included in:

            

Net income

     —         —         610       —         —         —    

Other comprehensive income (loss)

     (25     —         (65     —         —         —    

Acquired

     450       —         —         —         —         —    

Originations

     —         —         628       —         —         —    

Principal paydowns / settlements

     —         —         (2,332     —         79       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asset (liability) balance, end of period

   $ 428     $ —       $ 14,077     $ —       $ (356   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) included in other comprehensive income for assets held at the end of the period

   $ (25   $ —       $ (65   $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Nine Months Ended September 30, 2020

            

Asset (liability) balance, beginning of period

   $ 433     $ —       $ 12,813     $ —       $ (356   $ —    

Total net gains (losses) included in:

            

Net income

     3       —         763       —         (1     —    

Other comprehensive income (loss)

     31       —         430       —         —         —    

Principal paydowns / settlements

     —         —         (4,451     —         216       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asset (liability) balance, end of period

   $ 467     $ —       $ 9,555     $ —       $ (141   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) included in other comprehensive income for assets held at the end of the period

   $ 31     $ —       $ 430     $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Nine Months Ended September 30, 2019

            

Asset (liability) balance, beginning of period

   $ 4     $ 18,070     $ 16,835     $ 624     $ (583   $ (26

Total net gains (losses) included in:

            

Net income

     —         534       1,975       778       —         (119

Other comprehensive income (loss)

     (25     —         246       —         —         —    

Acquired

     450            

Sales

     —         (164,693     —         —         —         —    

Originations

     —         175,304       2,180       —         —         —    

Principal paydowns / settlements

     (1     (4     (7,159     —         227       —    

Transfers out of Level 3(1)

     —         (29,211     —         (1,402     —         145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asset (liability) balance, end of period

   $ 428     $ —       $ 14,077     $ —       $ (356   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) included in other comprehensive income for assets held at the end of the period

   $ (25   $ —       $ 246     $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

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


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

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

Loans and Leases: Loans and leases for which repayment is expected to be provided solely by the value of the underlying collateral, categorized as Level 3 and recorded at fair value on a non-recurring basis, are valued based on the fair value of that collateral less estimated selling costs. The fair value of the collateral is determined based on internal estimates and/or assessments provided by third-party appraisers and the valuation relies on discount rates ranging from 10% to 15%.

Loan servicing rights: The fair value of loan servicing rights, categorized as Level 3, is based on a third party valuation model utilizing a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and a discount rate determined by management. The valuation relies on discount rates ranging from 10% to 15% and prepayment speeds ranging from 9% to 25%. Loan servicing rights are recorded at the lower of cost or fair value.

Other Real Estate Owned: The fair value of other real estate owned, categorized as Level 3, is based on independent appraisals, real estate brokers’ price opinions or automated valuation methods, less estimated selling costs. Certain properties require assumptions that are not observable in an active market in the determination of fair value and include a discount rate of 10%. Assets acquired through foreclosure are initially recorded at the lower of the loan or lease carrying amount or fair value less estimated selling costs at the time of transfer to other real estate owned.

Repossessed and Returned Assets: The fair value of repossessed and returned assets, categorized as Level 2 or Level 3 depending on the underlying asset type, are based on available pricing guides, auction results or price opinions, less estimated selling costs. Assets acquired through repossession or returned to TCF are initially recorded at the lower of the loan or lease carrying amount or fair value less estimated selling costs at the time of transfer to repossessed and returned assets.

The balances of assets measured at fair value on a non-recurring basis were as follows. There were no liabilities measured at fair value on a non-recurring basis at September 30, 2020 and December 31, 2019.

 

(In thousands)

   Level 1      Level 2      Level 3      Total  

At September 30, 2020

           

Loans and leases

   $ —        $ —        $ 261,885      $ 261,885  

Loan servicing rights

     —          —          38,253        38,253  

Other real estate owned

     —          —          15,730        15,730  

Repossessed and returned assets

     —          10,077        —          10,077  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring fair value measurements

   $ —        $ 10,077      $ 315,868      $ 325,945  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2019

           

Loans and leases

   $ —        $ —        $ 141,199      $ 141,199  

Loan servicing rights

     —          —          56,298        56,298  

Other real estate owned

     —          —          17,577        17,577  

Repossessed and returned assets

     —          6,968        —          6,968  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring fair value measurements

   $ —        $ 6,968      $ 215,074      $ 222,042  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value Option

The Corporation has elected the fair value option for residential mortgage loans held-for-sale. This election facilitates the offsetting of changes in fair value of the loans held-for-sale and the derivative financial instruments used to economically hedge them. The difference between the aggregate fair value and aggregate unpaid principal balance of these loans held-for-sale was as follows:

 

(In thousands)

   September 30, 2020      December 31, 2019  

Fair value carrying amount

   $ 460,172      $ 91,202  

Aggregate unpaid principal amount

     436,216        88,192  
  

 

 

    

 

 

 

Fair value carrying amount less aggregate unpaid principal

   $ 23,956      $ 3,010  
  

 

 

    

 

 

 


Differences between the fair value carrying amount and the aggregate unpaid principal balance include changes in fair value recorded at and subsequent to funding and gains and losses on the related loan commitment prior to funding. No loans recorded under the fair value option were delinquent or on nonaccrual status at September 30, 2020 and December 31, 2019. The net gain from initial measurement of the loans held-for-sale, any subsequent changes in fair value while the loans are outstanding and any actual adjustment to the gains realized upon sales of the loans totaled $31.4 million and $79.0 million for the three and nine months ended September 30, 2020 and $12.4 million and $18.3 million for the same periods in 2019, and are included in net gains on sales of loans and leases. These amounts exclude the impacts from the interest rate lock commitments and forward loan sales commitments which are also included in net gains on sales of loans and leases.

Disclosures about Fair Value of Financial Instruments

Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at September 30, 2020 and December 31, 2019 based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, given there is no active market or observable market transactions for many of TCF’s financial instruments, the estimates of fair value are subjective in nature, involve uncertainties and include matters of significant judgment. Changes in assumptions could significantly affect the estimated values.

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

 

     At September 30, 2020  
     Carrying
Amount
     Estimated Fair Value  

(In thousands)

   Level 1      Level 2      Level 3      Total  

Financial instrument assets

              

FHLB and FRB stocks

   $ 300,444      $ —        $ 300,444      $ —        $ 300,444  

Investment securities held-to-maturity

     170,309        —          176,649        3,715        180,364  

Loans and leases held-for-sale

     255        —          —          262        262  

Net loans(1)

     31,140,162        —          —          31,323,032        31,323,032  

Securitization receivable(2)

     —          —          —          19,802        19,802  

Deferred fees on commitments to extend credit(2)

     21,222        —          21,222        —          21,222  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument assets

   $ 31,632,392      $ —        $ 498,315      $ 31,346,811      $ 31,845,126  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial instrument liabilities

              

Certificates of deposits

   $ 6,334,760      $ —        $ 6,355,057      $ —        $ 6,355,057  

Long-term borrowings

     871,845        —          901,221        —          901,221  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument liabilities

   $ 7,206,605      $ —        $ 7,256,278      $ —        $ 7,256,278  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Expected credit losses are included in the carrying amount and estimated fair value.

(2)

Carrying amounts are included in other assets.

(3)

Carrying amounts are included in other liabilities.


     At December 31, 2019  
     Carrying
Amount
     Estimated Fair Value  

(In thousands)

   Level 1      Level 2      Level 3      Total  

Financial instrument assets

              

FHLB and FRB stocks

   $ 442,440      $ —        $ 442,440      $ —        $ 442,440  

Investment securities held-to-maturity

     139,445        —          141,168        3,676        144,844  

Loans held-for-sale

     108,584        —          110,252        2,273        112,525  

Net loans(1)

     31,699,285        —          —          31,804,513        31,804,513  

Securitization receivable(2)

     19,689        —          —          19,466        19,466  

Deferred fees on commitments to extend credit(2)

     19,300        —          19,300        —          19,300  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument assets

   $ 32,428,743      $ —        $ 713,160      $ 31,829,928      $ 32,543,088  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial instrument liabilities

              

Certificates of deposits

   $ 7,455,556      $ —        $ 7,460,577      $ —        $ 7,460,577  

Long-term borrowings

     2,354,448        —          2,368,469        —          2,368,469  

Deferred fees on standby letters of credit(3)

     56        —          56        —          56  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument liabilities

   $ 9,810,060      $ —        $ 9,829,102      $ —        $ 9,829,102  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Expected credit losses are included in the carrying amount and estimated fair value.

(2)

Carrying amounts are included in other assets.

(3)

Carrying amounts are included in other liabilities.

Note 17. Revenue from Contracts with Customers

The Corporation earns a variety of revenue, including interest and fees, from customers, as well as revenues from noncustomers. The majority of the sources of revenue are included in interest income and noninterest income and are outside of the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Other sources of revenue fall within the scope of ASC 606 and are mostly included in noninterest income.

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

 

   

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

 

   

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

 

   

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

 

   

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


The following tables present total noninterest income segregated between contracts with customers within the scope of ASC 606 and those within the scope of other GAAP topics.

 

     Three Months Ended September 30, 2020  
     Within the scope of ASC 606      Out of scope
of ASC 606
     Total  

(In thousands)

   Consumer
Banking
     Commercial
Banking
     Enterprise
Services
 

Noninterest income

              

Fees and service charges on deposit accounts

   $ 23,010      $ 2,425      $ —        $ 35      $ 25,470  

Wealth management revenue

     1,334        —          —          5,172        6,506  

Card and ATM revenue

     21,635        64        —          1,684        23,383  

Other noninterest income

     1,461        1,413        199        60,378        63,451  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 47,440      $ 3,902      $ 199      $ 67,269      $ 118,810  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended September 30, 2019  
     Within the scope of ASC 606      Out of scope
of ASC 606
    Total  

(In thousands)

   Consumer
Banking
    Commercial
Banking
     Enterprise
Services
 

Noninterest income

            

Fees and service charges on deposit accounts

   $ 32,552     $ 2,046      $ —        $ (214   $ 34,384  

Wealth management revenue

     1,047       —          —          3,194       4,241  

Card and ATM revenue

     21,479       2        —          1,834       23,315  

Other noninterest income

     (455     1,592        163        31,018       32,318  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 54,623     $ 3,640      $ 163      $ 35,832     $ 94,258  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended September 30, 2020  
     Within the scope of ASC 606      Out
of scope of
ASC 606
     Total  

(In thousands)

   Consumer
Banking
     Commercial
Banking
     Enterprise
Services
 

Noninterest income

              

Fees and service charges on deposit accounts

   $ 75,130      $ 7,459      $ —        $ 310      $ 82,899  

Wealth management revenue

     3,846        —          —          15,017        18,863  

Card and ATM revenue

     59,041        66        —          6,597        65,704  

Other noninterest income

     1,293        4,466        767        214,835        221,361  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 139,310      $ 11,991      $ 767      $ 236,759      $ 388,827  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2019  
     Within the scope of ASC 606      Out of scope
of ASC 606
    Total  

(In thousands)

   Consumer
Banking
     Commercial
Banking
     Enterprise
Services
 

Noninterest income

             

Fees and service charges on deposit accounts

   $ 84,453      $ 4,243      $ —        $ (192   $ 88,504  

Wealth management revenue

     1,047        —          —          3,194       4,241  

Card and ATM revenue

     60,584        3        —          1,883       62,470  

Other noninterest income

     395        6,908        245        144,717       152,265  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 146,479      $ 11,154      $ 245      $ 149,602     $ 307,480  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

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


Note 18. Share-based Compensation

The Corporation maintains share-based compensation plans under which it periodically grants share-based awards for a fixed number of shares to directors and certain officers of the Corporation.

Before the Merger, Chemical and Legacy TCF granted share-based awards under their respective share-based compensation plans, including the Chemical Stock Incentive Plan of 2019 (the “Stock Incentive Plan of 2019”) and the TCF Financial 2015 Omnibus Incentive Plan (the “Legacy TCF Omnibus Incentive Plan”). At September 30, 2020, there were 1,440,141 shares reserved for issuance under the Legacy TCF Omnibus Incentive Plan and there were 1,147,952 shares reserved for issuance under the Stock Incentive Plan of 2019.

The fair value of share-based awards is recognized as compensation expense over the requisite service or performance period. Compensation expense for share-based awards, including the merger-related share-based compensation expense was $11.9 million and $33.6 million for the three and nine months ended September 30, 2020, respectively, and $9.8 million and $13.6 million for the same period in 2019, respectively. The excess tax realized from share-based compensation transactions during the three and nine months ended September 30, 2020 was an expense of $897 thousand and $2.0 million, respectively, and a benefit of $743 thousand and $2.0 million for the same period in 2019, respectively.

Restricted Stock Units

The Corporation can grant performance-based restricted stock units (“PRSUs”) and time-based restricted stock units (“TRSUs”) (collectively referred to as “RSUs”) under the Stock Incentive Plan of 2019 and the Legacy TCF Omnibus Incentive Plan; provided, that, RSUs granted under the Legacy TCF Omnibus Incentive Plan may only be granted to new employees hired after the merger or employees who previously were employees of Legacy TCF. At September 30, 2020, there were 407,323 PRSUs outstanding dependent on achieving certain performance target levels and the grantee completing the requisite service period. The TRSUs vest upon satisfaction of a service condition. Upon achievement of the satisfaction of a service condition and/or performance target level, as applicable, the TRSUs are converted into shares of TCF Financial’s common stock on a one-to-one basis and the PRSUs are converted into shares of TCF Financial’s common stock in accordance with the achievement of the performance target (ranging from 0% to 150% of the granted PRSUs). Compensation expense related to RSUs is recognized over the expected requisite performance or service period, as applicable.

A summary of the activity for RSUs at and for the nine months ended September 30, 2020 is presented below:

 

     Number of
Units
     Weighted-average
Grant Date Fair
Value Per Unit
 

Outstanding at December 31, 2019

     1,511,820      $ 44.49  

Granted

     1,465,165        24.59  

Forfeited/canceled

     (45,388      28.93  

Vested

     (601,651      43.99  
  

 

 

    

 

 

 

Outstanding at September 30, 2020

     2,329,946      $ 32.41  
  

 

 

    

 

 

 

Unrecognized compensation expense related to RSUs totaled $52.1 million at September 30, 2020 and is expected to be recognized over the remaining weighted-average period of 2.7 years.

Restricted Stock Awards

The Corporation’s restricted stock award transactions were as follows:

 

     Number of Awards      Weighted-Average Grant
Date Fair Value Per
Award
 

Outstanding at December 31, 2019

     888,305      $ 40.67  

Granted

     54,040        25.91  

Forfeited/canceled

     (7,959      39.91  

Vested

     (379,485      41.11  
  

 

 

    

 

 

 

Outstanding at September 30, 2020

     554,901      $ 38.63  
  

 

 

    

 

 

 


At September 30, 2020, there were no shares of performance-based restricted stock awards outstanding. Unrecognized stock compensation expense for restricted stock awards was $11.5 million at September 30, 2020 with a weighted-average remaining amortization period of 1.9 years.

The following table provides information regarding total expense for restricted stock awards:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Restricted stock expense related to employees(1)

   $ 7,600      $ 4,779      $ 17,995      $ 9,455  

Restricted stock expense related to directors(2)

     352        391        566        709  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total restricted stock expense

   $ 7,952      $ 5,170      $ 18,561      $ 10,164  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Included in “Compensation and employee benefits” in the Consolidated Statements of Income.

(2)

Included in “Other noninterest expense” in the Consolidated Statements of Income.

Stock Options

A summary of activity for the Corporation’s stock options at and for the nine months ended September 30, 2020 is presented below:

 

     Non-Vested Stock Options
Outstanding
     Stock Options Outstanding  
     Number of
Options
     Weighted-
average
Exercise Price
     Number of
Options
     Weighted-
average
Exercise Price
 

Outstanding at December 31, 2019

     120,809      $ 39.63        495,165      $ 29.48  

Exercised

     —          —          (82,276      22.03  

Forfeited/canceled

     (3,659      38.18        —          —    

Expired

     —          —          (74,626      38.89  

Vested

     (57,262      38.38        57,262        38.38  
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at September 30, 2020

     59,888      $ 40.92        395,525      $ 30.55  

Exercisable/vested at September 30, 2020

  

 

 

 

  

 

 

 

     395,525      $ 30.55  
        

 

 

    

 

 

 

The weighted-average remaining contractual term was 4.1 years for all outstanding stock options and 3.9 years for exercisable stock options at September 30, 2020.

Note 19. Retirement Plans

The Corporation’s retirement plans include qualified defined benefit pension plans, nonqualified postretirement benefit plans, 401(k) savings plans and nonqualified supplemental retirement plans. These plans are discussed in further detail in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.

Qualified Defined Benefit Pension Plans

The TCF Cash Balance Pension Plan (the “Legacy TCF Pension Plan”) and the Chemical Financial Corporation Employees’ Pension Plan (“Chemical Pension Plan”) are both defined as qualified benefit pension plans (collectively, the “Pension Plans”), which previously provided for postretirement pension benefits for plan eligible employees.

The Board of Directors of Legacy TCF approved the termination of the Legacy TCF Pension Plan effective November 1, 2019. The Corporation believes all participants will have their benefits paid in full. During the three months ended September 30, 2020, distributions were made to all participants electing a lump sum payment. Due to the TCF Pension Plan’s funding level, assets were liquidated and additional funding was made for the annuity purchase in October 2020. The weighted-average interest crediting rate was 2.05% as of September 30, 2020. TCF does not consolidate the assets and liabilities associated with the Legacy TCF Pension Plan.


The termination of the Chemical Pension Plan was effective August 31, 2019. The discount rate was adjusted to 3.48% based on the remeasurement of the Chemical Pension Plan required due to the Merger and the termination. At the time of the Merger, as a result of the termination, the Corporation recognized a prepaid asset representing the funded status of the Chemical Pension Plan, net of estimated settlement costs, and the balance previously recorded in accumulated other comprehensive income was eliminated. The purchase accounting adjustment, as a result of the Merger, was reported in goodwill. The Chemical Pension Plan was fully funded as of September 30, 2020. During the three months ended September 30, 2020, distributions were made to all participants electing a lump-sum payment. Following that distribution, existing plan assets will be liquidated over the next several months and an annuity purchase transaction was completed in October 2020.

Nonqualified Postretirement Benefit Plans

The Legacy TCF Postretirement Plan provides health care benefits to eligible retired employees who retired prior to December 31, 2009. The provisions for active and retired employees then eligible for these benefits were not changed. The Postretirement Plan is not funded.

The Chemical Postretirement Benefit Plan provides medical and dental benefits, during retirement, to a limited number of active and retired employees. The benefits can be amended, modified or terminated by the Corporation at any time.

401(k) Savings Plans

The TCF 401K Plan (the “TCF 401K”), a qualified postretirement benefit and employee stock ownership plan provides, and until December 31, 2019 the Chemical Financial Corporation 401K Savings Plan (the “Chemical 401K”), a qualified postretirement benefit plan provided the option to invest in TCF common stock. Effective December 31, 2019, the Chemical 401K merged with and into the TCF 401K. All participant balances remaining in the Chemical 401K were transferred into the TCF 401K on December 31, 2019.

Nonqualified Supplemental Retirement Plans

The TCF 401K Supplemental Plan (the “Legacy TCF SERP”) and the TCF Financial Corporation Deferred Compensation Plan (the “TCF Deferred Compensation Plan”) are both defined as nonqualified supplemental retirement plans. The Legacy TCF SERP’s assets, which include investments in TCF common stock, are held in trust and included in equity in the other line item.

Net Periodic Benefit

The net periodic benefit plan (income) cost included in other noninterest expense for defined benefit pension plans and postretirement benefit plans were as follows:

 

     Defined Benefit Pension Plans  
     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Interest cost

   $ 946      $ 1,046      $ 2,839      $ 1,574  

Return on plan assets

     (864      (949      (2,594      (1,223
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit plan (income) cost

   $ 82      $ 97      $ 245      $ 351  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Postretirement Benefit Plans  
     Three Months Ended September 30,      Nine Months Ended September 30,  

(In thousands)

   2020      2019      2020      2019  

Interest cost

   $ 36      $ 41      $ 107      $ 101  

Service cost

     —          —          1        —    

Amortization of prior service cost

     (12      (11      (35      (35
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit plan (income) cost

   $ 24      $ 30      $ 73      $ 66  
  

 

 

    

 

 

    

 

 

    

 

 

 


TCF made no cash contributions to the defined benefit pension plans during the three and nine months ended September 30, 2020 and 2019. Due to the funding level upon final termination, assets were liquidated and additional funding was made for the annuity purchase in October 2020. TCF contributed $0.1 million and $0.2 million to the Legacy TCF Postretirement Plan during the three and nine months ended September 30, 2020, respectively, compared to $0.1 million and $0.3 million during the three and nine months ended September 30, 2019, respectively. TCF made no contributions to the Chemical Postretirement Benefit Plan during both the three and nine months ended September 30, 2020 and 2019.

As of December 31, 2019, the TCF 401K allows participants to make contributions of up to 50% of their covered compensation on a tax-deferred and/or after-tax basis, subject to the annual covered compensation limitation imposed by the Internal Revenue Service (“IRS”). TCF matches the contributions of all participants at a rate of $1 per dollar for employees to a maximum company contribution of 5% of the employee’s covered compensation per pay period subject to the annual covered compensation limitation imposed by the IRS. Employee contributions and matching contributions vest immediately. The Corporation match under the TCF 401K was $5.0 million and $16.8 million for the three and nine months ended September 30, 2020, respectively. The Corporation match under both the Legacy TCF 401k and the Chemical 401k was $4.3 million and $11.4 million for the three and nine months ended September 30, 2019, respectively. Dividends on TCF’s common shares held in the TCF 401K are reinvested in such fund or, at the election of the participant, may be paid in cash to the participant.

Effective January 1, 2020, the TCF Deferred Compensation Plan (previously the Chemical Deferred Compensation Plan), a nonqualified supplemental retirement plan, was amended to allow certain employees to contribute up to 60% of their salary and up to 85% of bonus compensation. The amounts deferred under this plan are invested in a selection of participant designated mutual funds.

Note 20. Earnings Per Common Share

The computations of basic and diluted earnings per common share were as follows:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

(Dollars in thousands, except per share data)

   2020      2019      2020      2019  

Basic earnings per common share

           

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  

Less: Earnings allocated to participating securities

     —          —          —          19  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings allocated to common stock

   $ 53,244      $ 19,654      $ 123,920      $ 175,569  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding used in basic earnings per common share calculation

     151,768,337        128,575,171        151,761,299        97,876,262  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.35      $ 0.15      $ 0.82      $ 1.79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

           

Earnings allocated to common stock

   $ 53,244      $ 19,654      $ 123,920      $ 175,569  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding used in basic earnings per common share calculation

     151,768,337        128,575,171        151,761,299        97,876,262  

Net dilutive effect of:

           

Non-participating restricted stock

     26,163        73,698        12,383        139,795  

Stock options

     27,092        105,719        53,246        39,222  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding used in diluted earnings per common share calculation

     151,821,592        128,754,588        151,826,928        98,055,279  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.35      $ 0.15      $ 0.82      $ 1.79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Anti-dilutive shares outstanding not included in the computation of diluted earnings per common share

           

Non-participating restricted stock

     2,303,249        1,271,045        2,531,355        1,271,045  

Stock options

     323,386        97,980        228,106        97,980  
  

 

 

    

 

 

    

 

 

    

 

 

 


Note 21. Other Noninterest Income and Expense

Other noninterest income and expense was as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 

(In thousands)

   2020      2019      2020      2019  

Other Noninterest Income

           

Gain on branch sales(1)

   $ —        $ —        $ 14,717      $ —    

Termination of interest rate swaps

     —          (17,302      —          (17,302

Loan servicing rights impairment

     (154      (4,520      (17,248      (4,520

Other

     5,565        9,513        35,650        21,510  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other noninterest income

   $ 5,411      $ (12,309    $ 33,119      $ (312
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Noninterest Expense

           

Outside processing

   $ 15,697      $ 12,084      $ 42,414      $ 23,475  

Loan and lease expense

     7,849        6,750        23,988        13,413  

Professional fees

     6,552        7,406        18,749        18,319  

Advertising and marketing

     8,251        7,101        21,091        19,229  

FDIC insurance

     5,138        6,298        18,439        11,708  

Card processing and issuance costs

     6,064        5,746        20,585        14,437  

Other

     33,872        42,391        100,409        94,200  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other noninterest expense

   $ 83,423      $ 87,776      $ 245,675      $ 194,781  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents the completion of the sale of seven banking centers in conjunction with deposits associated with those banking centers.

Note 22. Reportable Segments

The Corporation’s reportable segments are Consumer Banking, Commercial Banking and Enterprise Services. Consumer Banking is comprised of all of the Corporation’s consumer-facing businesses and includes retail banking, consumer lending, wealth management and small business banking. Commercial Banking, previously named Wholesale Banking, is comprised of commercial and industrial and commercial real estate banking and lease financing. Enterprise Services is comprised of (i) corporate treasury, which includes the Corporation’s investment and borrowing portfolios and management of capital, debt and market risks, (ii) corporate functions, such as information technology, risk and credit management, bank operations, finance, investor relations, corporate development, internal audit, legal and human capital management that provide services to the operating segments, (iii) the Holding Company and (iv) eliminations.

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

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


Certain information for each of the Corporation’s reportable segments, including reconciliations of the consolidated totals, was as follows:

 

(In thousands)

   Consumer
Banking
     Commercial
Banking
     Enterprise
Services
     Consolidated  

At or For the Three Months Ended September 30, 2020

           

Net interest income

   $ 216,851      $ 167,160      $ (6,844    $ 377,167  

Provision (benefit) for credit losses

     (27,217      96,881        —          69,664  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     244,068        70,279        (6,844      307,503  

Noninterest income

     78,587        35,105        5,118        118,810  

Noninterest expense

     204,239        105,646        63,555        373,440  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense (benefit)

     118,416        (262      (65,281      52,873  

Income tax expense (benefit)

     19,744        (8,613      (15,560      (4,429
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) after income tax expense (benefit)

     98,672        8,351        (49,721      57,302  

Income attributable to non-controlling interest

     —          1,564        —          1,564  

Preferred stock dividends

     —          —          2,494        2,494  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common shareholders

     98,672        6,787        (52,215      53,244  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $13,935,521      $ 23,466,019        $10,164,249      $ 47,565,789  
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues from external customers

     

Interest income

   $ 139,827      $ 237,060      $ 43,561      $ 420,448  

Noninterest income

     78,587        35,105        5,118        118,810  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 218,414      $ 272,165      $ 48,679      $ 539,258  
  

 

 

    

 

 

    

 

 

    

 

 

 

At or For the Three Months Ended September 30, 2019

     

Net interest income

   $ 191,940      $ 157,437      $ 22,416      $ 371,793  

Provision for credit losses

     4,489        22,699        —          27,188  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     187,451        134,738        22,416        344,605  

Noninterest income

     57,102        47,929        (10,773      94,258  

Noninterest expense

     210,728        102,841        112,051        425,620  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense (benefit)

     33,825        79,826        (100,408      13,243  

Income tax expense (benefit)

     6,817        8,172        (26,724      (11,735
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) after income tax expense (benefit)

     27,008        71,654        (73,684      24,978  

Income attributable to non-controlling interest

     —          2,830        —          2,830  

Preferred stock dividends

     —          —          2,494        2,494  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

     27,008        68,824        (76,178      19,654  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $13,701,633      $ 19,045,367        $12,945,511      $ 45,692,511  
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues from external customers

     

Interest income

   $ 153,843      $ 265,678      $ 40,287      $ 459,808  

Noninterest income

     57,102        47,929        (10,773      94,258  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 210,945      $ 313,607      $ 29,514      $ 554,066  
  

 

 

    

 

 

    

 

 

    

 

 

 


(In thousands)

   Consumer
Banking
     Commercial
Banking
     Enterprise
Services
     Consolidated  

At or For the Nine Months Ended September 30, 2020

           

Net interest income

   $ 616,968      $ 522,619      $ 17,420      $ 1,157,007  

Provision for credit losses

     6,228        239,105        —          245,333  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     610,740        283,514        17,420        911,674  

Noninterest income

     245,277        134,709        8,841        388,827  

Noninterest expense

     640,417        325,425        182,438        1,148,280  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense (benefit)

     215,600        92,798        (156,177      152,221  

Income tax expense (benefit)

     37,478        11,133        (33,741      14,870  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) after income tax expense (benefit)

     178,122        81,665        (122,436      137,351  

Income attributable to non-controlling interest

     —          5,950        —          5,950  

Preferred stock dividends

     —          —          7,481        7,481  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common shareholders

     178,122        75,715        (129,917      123,920  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $13,935,521      $ 23,466,019      $ 10,164,249      $ 47,565,789  
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues from external customers

  

Interest income

   $ 430,162      $ 788,745      $ 135,303      $ 1,354,210  

Noninterest income

     245,277        134,709        8,841        388,827  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 675,439      $ 923,454      $ 144,144      $ 1,743,037  
  

 

 

    

 

 

    

 

 

    

 

 

 

At or For the Nine Months Ended September 30, 2019

  

Net interest income

   $ 470,738      $ 350,848      $ 58,693      $ 880,279  

Provision for credit losses

     16,406        34,473        —          50,879  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     454,332        316,375        58,693        829,400  

Noninterest income

     183,767        132,883        (9,170      307,480  

Noninterest expense

     520,007        267,147        128,390        915,544  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense (benefit)

     118,092        182,111        (78,867      221,336  

Income tax expense (benefit)

     26,529        30,271        (27,934      28,866  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) after income tax expense (benefit)

     91,563        151,840        (50,933      192,470  

Income attributable to non-controlling interest

     —          9,401        —          9,401  

Preferred stock dividends

     —          —          7,481        7,481  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

     91,563        142,439        (58,414      175,588  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $13,701,633      $ 19,045,367      $ 12,945,511      $ 45,692,511  
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues from external customers

  

Interest income

   $ 370,016      $ 619,419      $ 88,048      $ 1,077,483  

Noninterest income

     183,767        132,883        (9,170      307,480  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 553,783      $ 752,302      $ 78,878      $ 1,384,963  
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 23. Commitments, Contingent Liabilities and Guarantees

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

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

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

 

(In thousands)

   At September 30,
2020
     At December 31,
2019
 

Commitments to extend credit:

     

Commercial

   $ 4,522,128      $ 5,743,072  

Consumer

     2,171,676        2,305,096  
  

 

 

    

 

 

 

Total commitments to extend credit

     6,693,804        8,048,168  

Standby letters of credit and guarantees on industrial revenue bonds

     116,792        129,192  
  

 

 

    

 

 

 

Total

   $ 6,810,596      $ 8,177,360  
  

 

 

    

 

 

 


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

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

Contingencies and Guarantees The Corporation has originated and sold certain loans, and additionally acquired the potential liability for loans originated and sold by merged or acquired entities, for which the buyer has limited recourse to the Corporation in the event the loans do not perform as specified in the agreements. These loans had an outstanding balance of $6.6 million and $6.2 million at September 30, 2020 and December 31, 2019, respectively. The maximum potential amount of undiscounted future payments that the Corporation could be required to make in the event of nonperformance by the borrower totaled $6.6 million and $6.0 million at September 30, 2020 and December 31, 2019, respectively. In the event of nonperformance, the Corporation has rights to the underlying collateral securing the loans. At December 31, 2019 the Corporation had recorded a liability of $0.1 million, in connection with the recourse agreements, in other liabilities. There was no recorded liability at September 30, 2020.

In addition, the Corporation acquired, through the Merger, certain Small Business Administration (“SBA”) guaranteed loans in which the guaranteed portion had been sold to a third party investor. In the event these loans default and the SBA guaranty is no longer intact (i.e. an issue is found to have occurred during the origination or the liquidation of the loans) the Corporation would be liable to make the loan whole to the third party investor. The maximum potential amount of undiscounted future payments that the Corporation could be required to make in the event of default by the borrower was $13.9 million and $16.7 million at September 30, 2020 and December 31, 2019, respectively. In the event of default, the Corporation has rights to the underlying collateral securing the loans. At September 30, 2020 and December 31, 2019, the Corporation had recorded a liability of $0.8 million and $0.9 million, respectively, in other liabilities.

Representations, Warranties and Contractual Liabilities In connection with the Corporation’s residential mortgage loan sales, and the historical sales of merged or acquired entities, the Corporation makes certain representations and warranties that the loans meet certain criteria, such as collateral type, underwriting standards and the manner in which the loans will be serviced. The Corporation may be required to repurchase individual loans and/or indemnify the purchaser against losses if the loan fails to meet established criteria. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower or the failure to obtain valid title. At September 30, 2020 and December 31, 2019 the liability recorded in connection with these representations and warranties was $3.8 million and $5.7 million, respectively, included in other liabilities.

Litigation Contingencies From time to time, we are a party to legal proceedings arising out of our lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of our lending and leasing collections activities. We may also be subject to regulatory examinations and enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB which may impose sanctions on us for failures related to regulatory compliance. From time to time borrowers and other customers, and employees and former employees have also brought actions against us, in some cases claiming substantial damages. We, like other financial services companies are subject to the risk of class action litigation. Litigation is often unpredictable and the actual results of litigation cannot be determined and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established. Based on our current understanding of our pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on our consolidated financial position, operating results or cash flows.