Exhibit 99.2

Item 1. Financial Statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

 

(Dollars in thousands, except per share data)

   At March 31, 2021     At December 31, 2020  

ASSETS

    

Cash and cash equivalents:

    

Cash and due from banks

   $ 585,663   $ 531,918

Interest-bearing deposits with other banks

     463,641     728,677
  

 

 

   

 

 

 

Total cash and cash equivalents

     1,049,304     1,260,595

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

     358,414     320,436

Investment securities:

    

Available-for-sale, at fair value (amortized cost of $8,396,973 and $8,041,173)

     8,403,788     8,284,723

Held-to-maturity, at amortized cost (fair value of $212,411 and $193,554)

     209,778     184,359
  

 

 

   

 

 

 

Total investment securities

     8,613,566     8,469,082

Loans and leases held-for-sale (includes $107,417 and $221,784 at fair value)

     107,649     222,028

Loans and leases

     36,221,019     34,466,408

Allowance for loan and lease losses

     (504,645     (525,868
  

 

 

   

 

 

 

Loans and leases, net

     35,716,374     33,940,540

Premises and equipment, net

     455,032     470,131

Goodwill

     1,379,890     1,313,046

Other intangible assets, net

     149,438     146,377

Loan servicing rights

     44,151     38,303

Other assets

     1,585,733     1,621,949
  

 

 

   

 

 

 

Total assets

   $ 49,459,551   $ 47,802,487
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 12,394,753   $ 11,036,086

Interest-bearing

     27,392,061     27,820,233
  

 

 

   

 

 

 

Total deposits

     39,786,814     38,856,319

Short-term borrowings

     1,426,083     617,363

Long-term borrowings

     1,518,816     1,374,732

Other liabilities

     1,136,067     1,264,776
  

 

 

   

 

 

 

Total liabilities

     43,867,780     42,113,190
  

 

 

   

 

 

 

Equity

    

Preferred stock, no 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 - 152,696,133 shares at March 31, 2021 and 152,565,504 shares at December 31, 2020

     152,696     152,566

Additional paid-in capital

     3,466,655     3,457,802

Retained earnings

     1,802,340     1,735,201

Accumulated other comprehensive income

     2,654     182,673

Other

     (29,813     (26,731
  

 

 

   

 

 

 

Total TCF Financial Corporation shareholders’ equity

     5,563,834     5,670,813

Non-controlling interest

     27,937     18,484
  

 

 

   

 

 

 

Total equity

     5,591,771     5,689,297
  

 

 

   

 

 

 

Total liabilities and equity

   $ 49,459,551   $ 47,802,487
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

1


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

 

     Three Months Ended March 31,  

(In thousands, except per share data)

   2021      2020  

Interest income

     

Interest and fees on loans and leases

   $ 360,584    $ 443,096

Interest on investment securities:

     

Taxable

     38,716      40,920

Tax-exempt

     3,700      4,349

Interest on loans held-for-sale

     975      1,561

Interest on other earning assets

     1,657      5,466
  

 

 

    

 

 

 

Total interest income

     405,632      495,392
  

 

 

    

 

 

 

Interest expense

     

Interest on deposits

     13,786      67,419

Interest on borrowings

     10,019      26,492
  

 

 

    

 

 

 

Total interest expense

     23,805      93,911
  

 

 

    

 

 

 

Net interest income

     381,827      401,481

Provision for credit losses

     20,556      96,943
  

 

 

    

 

 

 

Net interest income after provision for credit losses

     361,271      304,538
  

 

 

    

 

 

 

Noninterest income

     

Leasing revenue

     36,453      33,565

Fees and service charges on deposit accounts

     25,895      34,597

Card and ATM revenue

     24,661      21,685

Mortgage banking income

     20,986      5,665

Wealth management revenue

     6,944      6,151

Net gains on sales of loans and leases

     6,058      7,573

Net gains on investment securities

     8      —    

Other

     11,055      27,727
  

 

 

    

 

 

 

Total noninterest income

     132,060      136,963
  

 

 

    

 

 

 

Noninterest expense

     

Compensation and employee benefits

     173,602      171,528

Occupancy and equipment

     52,166      57,288

Lease financing equipment depreciation

     20,426      18,450

Net foreclosed real estate and repossessed assets

     1,029      1,859

Merger-related expenses

     16,216      36,728

Other

     85,243      88,746
  

 

 

    

 

 

 

Total noninterest expense

     348,682      374,599
  

 

 

    

 

 

 

Income before income tax expense

     144,649      66,902

Income tax expense

     19,540      13,086
  

 

 

    

 

 

 

Income after income tax expense

     125,109      53,816

Income attributable to non-controlling interest

     1,773      1,917
  

 

 

    

 

 

 

Net income attributable to TCF Financial Corporation

     123,336      51,899

Preferred stock dividends

     2,493      2,493
  

 

 

    

 

 

 

Net income available to common shareholders

   $ 120,843    $ 49,406
  

 

 

    

 

 

 

Earnings per common share

     

Basic

   $ 0.79    $ 0.33

Diluted

     0.79      0.32

Weighted-average common shares outstanding

     

Basic

     152,159,117      151,902,357

Diluted

     152,540,687      152,114,017
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

2


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

 

     Three Months Ended March 31,  

(In thousands)

   2021     2020  

Net income attributable to TCF Financial Corporation

   $ 123,336   $ 51,899

Other comprehensive income (loss), net of tax:

    

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

     (180,612     115,847

Net unrealized gains (losses) on net investment hedges

     (1,559     10,481

Foreign currency translation adjustment

     2,170     (14,426

Recognized postretirement prior service cost

     (18     (9
  

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     (180,019     111,893
  

 

 

   

 

 

 

Comprehensive (loss) income

   $ (56,683   $ 163,792
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity (Unaudited)

At or For the Three Months Ended March 31, 2021 and 2020

 

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

(Dollars in thousands)

  Preferred     Common  

Balance, December 31, 2020

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

Net income

    —         —         —         —         —         123,336     —         —         123,336     1,773     125,109

Other comprehensive income (loss), net of tax

    —         —         —         —         —         —         (180,019     —         (180,019     —         (180,019

Net investment by (distribution to) non-controlling interest

    —         —         —         —         —         —         —         —         —         7,680     7,680

Dividends on 5.70% Series C Preferred Stock

    —         —         —         —         —         (2,493     —         —         (2,493     —         (2,493

Dividends on common stock of $0.35 per common share

    —         —         —         —         —         (53,704     —         —         (53,704     —         (53,704

Stock compensation plans, net of tax

    —         130,629     —         130     5,771     —         —         —         5,901     —         5,901

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

    —         —         —         —         3,082     —         —         (3,082     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2021

    7,000     152,696,133   $ 169,302   $ 152,696   $ 3,466,655   $ 1,802,340   $ 2,654   $ (29,813   $ 5,563,834   $ 27,937   $ 5,591,771
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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

(Dollars in thousands)

  Preferred     Common  

Balance, December 31, 2019

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

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

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

Balance, January 1, 2020

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

Net income

    —         —         —         —         —         51,899     —         —         51,899     1,917     53,816

Other comprehensive income (loss), net of tax

    —         —         —         —         —         —         111,893     —         111,893     —         111,893

Net investment by (distribution to) non-controlling interest

    —         —         —         —         —         —         —         —         —         7,932     7,932

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

    —         —         —         —         —         (2,493     —         —         (2,493     —         (2,493

Dividends on common stock of $0.35 per common share

    —         —         —         —         —         (53,578     —         —         (53,578     —         (53,578

Stock compensation plans, net of tax

    —         93,789     —         93     3,276     —         —         —         3,369     —         3,369

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

    —         —         —         —         103     —         —         (103     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2020

    7,000     152,185,984   $ 169,302   $ 152,186   $ 3,433,234   $ 1,732,932   $ 166,170   $ (28,140   $ 5,625,684   $ 30,149   $ 5,655,833
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See “Note 2. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information.

 

4


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

 

     Quarter Ended March 31,  

(In thousands)

   2021     2020  

Cash flows from operating activities

    

Income after income tax expense

   $ 125,109   $ 53,816

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

    

Provision for credit losses

     20,556     96,943

Share-based compensation expense

     7,277     5,647

Depreciation and amortization

     106,381     99,541

Provision (benefit) for deferred income taxes

     46,452     (3,016

Net gains on sales of assets

     (24,365     (28,573

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

     525,556     268,133

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

     (399,628     (362,680

Loan servicing rights (recovery) impairment

     (7,637     8,236

Net change in other assets

     (138,828     (218,094

Net change in other liabilities

     (143,062     (405,718

Other, net

     (1,073     (14,106
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     116,738     (499,871
  

 

 

   

 

 

 

Cash flows from investing activities

    

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

     704,304     311,531

Purchases of investment securities available-for-sale

     (858,934     (412,011

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

     9,865     4,152

Purchases of investment securities held-to-maturity

     (20,051     —    

Redemption of Federal Home Loan Bank stock

     136,002     144,000

Purchases of Federal Home Loan Bank stock

     (174,000     (186,000

Proceeds from sales of loans and leases

     67,791     287,050

Loan and lease originations and purchases, net of principal collected

     (961,317     (1,717,733

Proceeds from sales of other assets

     28,114     16,494

Purchases of premises and equipment and lease equipment

     (25,304     (23,846

Net cash paid in business combination

     (1,069,830     —    

Other, net

     (1,732     15,177
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,165,092     (1,561,186
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net change in deposits

     930,495     1,143,905

Net change in short-term borrowings

     808,720     813,425

Proceeds from long-term borrowings

     2,857,651     4,150,000

Payments on long-term borrowings

     (2,710,221     (3,912,310

Repurchases of common stock

     —         (33,098

Dividends paid on preferred stock

     (2,493     (2,493

Dividends paid on common stock

     (53,704     (53,578

Exercise of stock options

     (327     63

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

     (738     (2,289

Net investment by (distribution to) non-controlling interest

     7,680     7,932
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,837,063     2,111,557
  

 

 

   

 

 

 

Net change in cash and due from banks

     (211,291     50,500

Cash and cash equivalents at beginning of period

     1,260,595     1,228,371
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,049,304   $ 1,278,871
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information

    

Cash paid for:

    

Interest on deposits and borrowings

   $ 34,454   $ 76,688

Income taxes, net

     4,971     1,838

Noncash activities:

    

Transfer of loans and leases to other assets

     8,143     15,983

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

     48,210     251,855
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

TCF Financial Corporation, a Michigan 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 National Bank (“TCF Bank”), TCF’s wholly owned bank subsidiary, a national banking association, has its main office in Sioux Falls, South Dakota. References herein to “TCF Financial” refer to TCF Financial Corporation on an unconsolidated basis.

TCF Bank operates banking centers primarily located in Michigan, Illinois and Minnesota with additional locations in Colorado, Ohio, Wisconsin and South Dakota (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, 2020.

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.

 

6


Note 2. Business Combinations

Proposed Merger with Huntington Bancshares Incorporated

On December 13, 2020, TCF and Huntington Bancshares Incorporated (“Huntington”) jointly announced the signing of a definitive merger agreement (the “TCF/Huntington Merger Agreement”). Under the terms of the agreement, the combined company will have dual headquarters for banking operations in Detroit, Michigan and Columbus, Ohio. Huntington is headquartered in Columbus, Ohio with reported assets of $125.8 billion as of March 31, 2021. Under the terms of the TCF/Huntington Merger Agreement, TCF shareholders will receive 3.0028 shares of Huntington common stock for each share of TCF common stock. Holders of TCF common stock will receive cash in lieu of fractional shares. Each outstanding share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF will be converted into the right to receive one share of a newly created series of preferred stock of Huntington and Huntington will assume the obligations of TCF under the applicable deposit agreement related to the depositary shares. On March 25, 2021, shareholders of both TCF and Huntington have approved the merger. Subject to receipt of regulatory approvals and satisfaction of other customary closing conditions, the transaction is anticipated to close in the second quarter of 2021.

Note 3. Summary of Significant Accounting Policies

Accounting policies in effect at December 31, 2020, as previously disclosed in “Note 2. Summary of Significant Accounting Policies” in the Corporation’s Annual Report on Form 10-K at and for the year ended December 31, 2020, remain significantly unchanged and have been followed similarly as in previous periods.

Recently Adopted Accounting Pronouncements

Effective January 1, 2021, the Corporation adopted Accounting Standards Update (“ASU”) No. 2020-10, Codification Improvements, which is intended to clarify or correct the unintended application of the Codification of accounting guidance for a wide variety of topics. The adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2021, the Corporation adopted ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs, which clarifies the intent of certain updates that were included in ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2021, the Corporation adopted 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 guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2021, the Corporation adopted 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 guidance did not have a material impact on the consolidated financial statements.

 

7


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. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

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

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 $1.0 billion and $1.3 billion at March 31, 2021 and December 31, 2020, respectively.

The Corporation maintains cash balances that are restricted as to their use in accordance with certain obligations. Cash payments received on loans serviced for third parties are generally held in separate accounts until remitted. The Corporation may also retain cash balances for collateral on certain borrowings and derivatives. The Corporation maintained restricted cash totaling $95.5 million and $95.1 million at March 31, 2021 and December 31, 2020, 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
March 31,
2021
     At
December 31,
2020
 

FHLB stock, at cost

   $ 234,455    $ 196,457

FRB stock, at cost

     123,959      123,979
  

 

 

    

 

 

 

Total investments

   $ 358,414    $ 320,436
  

 

 

    

 

 

 

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 March 31, 2021 and December 31, 2020.

 

8


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 March 31, 2021

           

Debt securities:

           

Obligations of states and political subdivisions

   $ 824,061    $ 30,772    $ 8,041    $ 846,792

Government and government-sponsored enterprises

     186,541      506      649      186,398

Mortgage-backed securities:

           

Residential agency

     6,545,644      93,014      123,937      6,514,721

Residential non-agency

     119,284      1,882      3      121,163

Commercial agency

     681,641      23,146      10,557      694,230

Commercial non-agency

     39,348      671      —          40,019
  

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

     7,385,917      118,713      134,497      7,370,133

Corporate debt and trust preferred securities

     454      11      —          465
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 8,396,973    $ 150,002    $ 143,187    $ 8,403,788
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2020

           

Debt securities:

           

Obligations of states and political subdivisions

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

Government and government-sponsored enterprises

     196,560      153      813      195,900

Mortgage-backed securities:

           

Residential agency

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

Residential non-agency

     156,865      2,819      2      159,682

Commercial agency

     669,235      39,715      999      707,951

Commercial non-agency

     39,358      3,072      —          42,430
  

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

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

Corporate debt and trust preferred securities

     453      48      —          501
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

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

 

 

    

 

 

    

 

 

    

 

 

 

 

     Investment Securities Held-to-Maturity  

(In thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

At March 31, 2021

           

Residential agency mortgage-backed securities

   $ 206,151    $ 6,615    $ 3,982    $ 208,784

Corporate debt and trust preferred securities

     3,627      —          —          3,627
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity (1)

   $ 209,778    $ 6,615    $ 3,982    $ 212,411
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2020

           

Residential agency mortgage-backed securities

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

Corporate debt and trust preferred securities

     3,413      —          —          3,413
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity (1)

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

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

At both March 31, 2021 and December 31, 2020 there was no ACL for investment securities held-to-maturity.

Accrued interest receivable for investment securities was $23.1 million and $20.6 million at March 31, 2021 and December 31, 2020, respectively, and is included in other assets on the Consolidated Statements of Financial Condition.

 

9


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 March 31, 2021  
     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

   $ 130,928    $ 8,041    $ —        $ —        $ 130,928    $ 8,041

Government and government sponsored enterprises

     93,950      649      —          —          93,950      649

Mortgage-backed securities:

                 

Residential agency

     3,848,667      123,937      —          —          3,848,667      123,937

Residential non-agency

     3,001      3      —          —          3,001      3

Commercial agency

     175,579      10,557      —          —          175,579      10,557

Commercial non-agency

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

     4,027,247      134,497      —          —          4,027,247      134,497
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 4,252,125    $ 143,187    $ —        $ —        $ 4,252,125    $ 143,187
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held-to-maturity

                 

Residential agency mortgage-backed securities

     108,682      3,982      —          —          108,682      3,982
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 108,682    $ 3,982    $ —        $ —        $ 108,682    $ 3,982
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2020  
     Less than 12 months      12 months or more      Total  

(In thousands)

   Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Investment securities available-for-sale

                 

Debt securities:

                 

Obligations of states and political subdivisions

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

Government and government sponsored enterprises

     139,940      813      —          —          139,940      813

Mortgage-backed securities:

                 

Residential agency

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

Residential non-agency

     1,529      2      —          —          1,529      2

Commercial agency

     96,667      999      —          —          96,667      999

Commercial non-agency

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed debt securities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2021 there was no ACL for investment securities available-for-sale. At March 31, 2021 there were 582 available-for-sale investment securities in an unrealized loss position. Management assessed each investment security with unrealized losses for credit impairment. Substantially all unrealized losses on investment securities available-for-sale were due to credit spreads and interest rates rather than credit impairment. As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Corporation will not be required and does not intend to sell any of the investment securities prior to recovery of the amortized cost.

 

10


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

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

Gross realized gains

   $ —      $ —  

Gross realized losses

     —          —    

Recoveries on previously impaired investment securities held-to-maturity

     8      —    
  

 

 

    

 

 

 

Net gains on investment securities

   $ 8    $
  

 

 

    

 

 

 

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 March 31, 2021      At December 31, 2020  

(In thousands)

   Amortized Cost      Fair Value      Amortized Cost      Fair Value  

Investment Securities Available-for-Sale

           

Due in one year or less

   $ 45,902    $ 46,020    $ 45,912    $ 46,163

Due in 1-5 years

     160,915      163,885      163,346      168,125

Due in 5-10 years

     770,039      788,800      681,135      720,239

Due after 10 years

     7,420,117      7,405,083      7,150,780      7,350,196
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 8,396,973    $ 8,403,788    $ 8,041,173    $ 8,284,723
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment Securities Held-to-Maturity

           

Due in one year or less

   $ 400    $ 400    $ 400    $ 400

Due in 1-5 years

     2,150      2,150      2,150      2,150

Due in 5-10 years

     43      48      46      51

Due after 10 years

     207,185      209,813      181,763      190,953
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 209,778    $ 212,411    $ 184,359    $ 193,554
  

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2021 and December 31, 2020, investment securities with a carrying value of $581.0 million and $1.0 billion, 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 March 31, 2021      At December 31, 2020  

Commercial loan and lease portfolio:

     

Commercial and industrial(1)

   $ 12,856,701    $ 11,422,383

Commercial real estate

     9,881,341      9,702,587

Lease financing

     2,956,626      2,817,231
  

 

 

    

 

 

 

Total commercial loan and lease portfolio

     25,694,668      23,942,201
  

 

 

    

 

 

 

Consumer loan portfolio:

     

Residential mortgage

     6,510,981      6,182,045

Home equity

     2,864,142      3,108,736

Consumer installment

     1,151,228      1,233,426
  

 

 

    

 

 

 

Total consumer loan portfolio

     10,526,351      10,524,207
  

 

 

    

 

 

 

Total loans and leases(2)

   $ 36,221,019    $ 34,466,408
  

 

 

    

 

 

 

 

(1)

Includes $1.9 billion and $1.6 billion of PPP loans at March 31, 2021 and December 31, 2020, respectively.

(2)

Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $(85.4) million and $(118.6) million at March 31, 2021 and December 31, 2020, respectively.

Accrued interest receivable for loans and leases was $94.2 million and $93.6 million at March 31, 2021 and December 31, 2020, respectively, and is included in other assets on the Consolidated Statements of Financial Condition.

 

11


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. On January 29, 2021, TCF acquired BB&T Commercial Equipment Capital, Corp. (“CEC”) through a business combination, which included a portfolio of $1.0 billion of commercial loans and leases. During the three months ended March 31, 2021, the Corporation acquired total loans and leases with a fair value of $1.8 billion, which primarily included the CEC commercial loans and leases and jumbo residential mortgage loans.

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

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

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

     

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

   $ 34,189    $ 34,156

Leasing revenue (Noninterest income):

     

Lease income from operating lease payments

     25,550      23,902

Profit recorded on commencement date on sales-type leases

     6,541      3,580

Gains on sales of leased equipment

     4,362      6,083
  

 

 

    

 

 

 

Leasing revenue

     36,453      33,565
  

 

 

    

 

 

 

Total lease income

   $ 70,642    $ 67,721
  

 

 

    

 

 

 

Loan and Lease Sales The following table summarizes the net gains on sales of loans and leases related to all loan and lease sales. The Corporation retains servicing on a majority of loans sold. See “Note 10. Loan Servicing Rights” for further information.

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

Sale proceeds, net

   $ 593,347    $ 555,182

Recorded investment in loans and leases sold, including accrued interest

     563,489      537,180

Other

     (8,135      2,588
  

 

 

    

 

 

 

Net gains on sales of loans and leases related to all loan and lease sales(1)

   $ 21,723    $ 20,590
  

 

 

    

 

 

 

 

(1)

Three months ended March 31, 2021 amount included within net gain on sales of loans and leases ($6.1 million) and mortgage banking income ($15.7 million). Three months ended March 31, 2020 amounts included within net gain on sales of loans and leases ($7.6 million) and mortgage banking income ($13.0 million).

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

 

(In thousands)

   At March 31, 2021      At December 31, 2020  

Interest-only strips

   $ 6,737    $ 7,823
  

 

 

    

 

 

 

The Corporation recorded $262 thousand of impairment charges related to interest-only strips during the three months ended March 31, 2021 and $224 thousand of impairment charges for the three months ended March 31, 2020.

 

12


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 months ended March 31, 2021 and 2020.

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.

Allowance for Credit Losses The rollforwards of the allowance for credit losses (“ACL”) 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
 

Three months ended March 31, 2021

          

Balance, beginning of period

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

Charge-offs

     (8,340     (47,278     (55,618     —         (55,618

Recoveries

     7,879     4,477     12,356     —         12,356
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (461     (42,801     (43,262     —         (43,262
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses

     9,276     12,684     21,960     (1,404     20,556

Other(2)

     (2,230     2,309     79     —         79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 143,479   $ 361,166   $ 504,645   $ 21,909   $ 526,554
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three months ended March 31, 2020

          

Balance, beginning of period

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

Impact of CECL adoption

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

Adjusted balance, beginning of period

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

Charge-offs

     (5,848     (8,881     (14,729     —         (14,729

Recoveries

     4,708     4,544     9,252     —         9,252
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (charge-offs) recoveries

     (1,140     (4,337     (5,477     —         (5,477
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses

     40,288     52,702     92,990     3,953     96,943

Other(2)

     —         (174     (174     —         (174
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 175,057   $ 231,326   $ 406,383   $ 22,188   $ 428,571
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Reserve for unfunded lending commitments (“RULC”) is recognized within other liabilities.

(2)

Primarily includes the allowance for purchased financial assets with credit deterioration (“PCD”) and the transfer of the allowance to loans and leases held-for-sale.

Management considers our ACL of $526.6 million, or 1.45% of total loans and leases, appropriate to cover current credit losses expected to be incurred in the loan and lease portfolios over the remaining expected life of each financial asset at March 31, 2021, including loans and leases which are not currently known to require specific allowances. The ACL was $549.2 million, or 1.59% of total loans and leases, at December 31, 2020. The decrease in the ACL as a percentage of total loans and leases from December 31, 2020 was primarily due to continued improvement in both current and forecasted macro-economic conditions and benefit from nonaccrual loan sale recoveries. The provision for credit losses related to loans and leases for the three months ended March 31, 2021 was primarily due to loan and lease growth, which included the purchase of commercial loans and leases as a part of the CEC business combination. PPP loans totaling $1.9 billion at March 31, 2021, are individually guaranteed by the Small Business Administration and therefore the accounting under CECL does not require reserves to be recorded on such loans.

 

13


PCD Loan Activity

For PCD loans and leases, the initial estimate of expected credit losses is recognized in the allowance for loan and lease losses (“ALLL”) on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans and leases purchased as part of the CEC business combination with credit deterioration at acquisition:

 

(In thousands)

      

Three months ended March 31, 2021

  

Par value

   $ 70,263

ALLL at acquisition

     (2,383

Non-credit premium (discount)

     (1,020
  

 

 

 

Purchase price

   $ 66,860
  

 

 

 

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 Coronavirus Aid, Relief and Economic Security (“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      Total  

At March 31, 2021

                 

Commercial loan and lease portfolio:

                 

Commercial and industrial

   $ 12,588,529    $ 25,413    $ 2,772    $ 12,616,714    $ 239,987    $ 12,856,701

Commercial real estate

     9,662,431      30,490      —          9,692,921      188,420      9,881,341

Lease financing

     2,824,770      33,164      4,734      2,862,668      93,958      2,956,626
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     25,075,730      89,067      7,506      25,172,303      522,365      25,694,668

Consumer loan portfolio:

                 

Residential mortgage

     6,421,403      11,171      1,874      6,434,448      76,533      6,510,981

Home equity

     2,781,347      9,798      56      2,791,201      72,941      2,864,142

Consumer installment

     1,142,579      2,587      —          1,145,166      6,062      1,151,228
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     10,345,329      23,556      1,930      10,370,815      155,536      10,526,351
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 35,421,059    $ 112,623    $ 9,436    $ 35,543,118    $ 677,901    $ 36,221,019
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2020

                 

Commercial loan and lease portfolio:

                 

Commercial and industrial

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

Commercial real estate

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

Lease financing

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                 

Residential mortgage

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

Home equity

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

Consumer installment

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Further details of the Corporation’s nonaccrual loans and leases were as follows:

 

    At March 31, 2021     At December 31, 2020  

(In thousands)

  Total nonaccrual     Nonaccrual with no ACL     Total nonaccrual     Nonaccrual with no ACL  

Commercial loan and lease portfolio:

       

Commercial and industrial

  $ 239,987   $ 45,371   $ 259,439   $ 55,773

Commercial real estate

    188,420     150,882     154,439     79,203

Lease financing

    93,958     —         90,822     —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial loan and lease portfolio

    522,365     196,253     504,700     134,976

Consumer loan portfolio:

       

Residential mortgage

    76,533     —         97,653     49

Home equity

    72,941     358     69,383     23

Consumer installment

    6,062     3,505     5,566     3,531
 

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loan portfolio

    155,536     3,863     172,602     3,603
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 677,901   $ 200,116   $ 677,302   $ 138,579
 

 

 

   

 

 

   

 

 

   

 

 

 

 

15


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
        

At March 31, 2021

   2021      2020      2019      2018      2017      2016
and Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

   $ —      $ 420    $ 163    $ —      $ 4    $ 262    $ 1,923    $ —      $ 2,772

Commercial real estate

     —          —          —          —          —          —          —          —          —    

Lease financing

     —          1,693      1,085      1,022      674      260      —          —          4,734
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     —          2,113      1,248      1,022      678      522      1,923      —          7,506
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

     —          85      312      —          202      1,275      —          —          1,874

Home equity

     —          —          —          —          56      —          —          —          56

Consumer installment

     —          —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     —          85      312      —          258      1,275      —          —          1,930
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total 90 days or more delinquent and accruing

   $ —      $ 2,198    $ 1,560    $ 1,022    $ 936    $ 1,797    $ 1,923    $ —      $ 9,436
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

            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
        

At December 31, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

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

Commercial real estate

     —          —          —          —          —          22      —          —          22

Lease financing

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

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

Home equity

     —          —          —          —          —          27      36      —          63

Consumer installment

     —          —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total 90 days or more delinquent and accruing

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


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
        

At March 31, 2021

   2021      2020      2019      2018      2017      2016
and Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

   $ 121    $ 27,464    $ 58,160    $ 51,542    $ 25,885    $ 39,613    $ 37,191    $ 11    $ 239,987

Commercial real estate

     —          4,309      25,233      13,738      57,547      87,593      —          —          188,420

Lease financing

     —          3,606      29,189      26,513      16,047      16,758      —          1,845      93,958
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     121      35,379      112,582      91,793      99,479      143,964      37,191      1,856      522,365
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

     —          3,253      7,744      11,920      2,996      50,620      —          —          76,533

Home equity

     22      847      934      445      432      5,594      63,920      747      72,941

Consumer installment

     —          87      238      340      514      4,690      193      —          6,062
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     22      4,187      8,916      12,705      3,942      60,904      64,113      747      155,536
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

   $ 143    $ 39,566    $ 121,498    $ 104,498    $ 103,421    $ 204,868    $ 101,304    $ 2,603    $ 677,901
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

            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
        

At December 31, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

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

Commercial real estate

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

Lease financing

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

                          

Residential mortgage

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

Home equity

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

Consumer installment

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


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

 

     Three Months Ended March 31,  
     2021      2020  

(In thousands)

   Average
Loan and
Lease
Balance
     Interest
Income
Recognized
     Average
Loan and
Lease
Balance
     Interest
Income
Recognized
 

Commercial loan and lease portfolio:

           

Commercial and industrial

   $ 249,713    $ 2,116    $ 68,985    $ 1,709

Commercial real estate

     171,429      3,040      38,383      1,784

Lease financing

     92,390      19      12,063      51
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loan and lease portfolio

     513,532      5,175      119,431      3,544
  

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loan portfolio:

           

Residential mortgage

     87,093      1,304      50,278      638

Home equity

     71,162      1,387      39,505      156

Consumer installment

     5,814      66      852      25
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loan portfolio

     164,069      2,757      90,635      819
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans and leases

   $ 677,601    $ 7,932    $ 210,066    $ 4,363
  

 

 

    

 

 

    

 

 

    

 

 

 

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 group 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.

 

18


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

 

     Amortized Cost Basis  

(In thousands)

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

At March 31, 2021

   2021      2020      2019      2018      2017      2016 and
Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

                          

Pass

   $ 1,289,456    $ 3,069,589    $ 1,924,724    $ 1,033,717    $ 527,205    $ 618,661    $ 3,541,892    $ 51,531    $ 12,056,775

Special mention

     6,898      16,592      87,857      75,921      42,692      10,888      147,237      754      388,839

Substandard

     2,501      36,312      98,860      61,460      33,431      76,814      101,429      280      411,087
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial

     1,298,855      3,122,493      2,111,441      1,171,098      603,328      706,363      3,790,558      52,565      12,856,701

Commercial real estate

                          

Pass

     304,562      1,373,808      2,274,851      1,767,581      1,169,172      2,021,114      —          —          8,911,088

Special mention

     81      17,878      88,125      83,486      214,000      175,698      —          —          579,268

Substandard

     1,739      60,777      43,251      86,540      82,812      115,866      —          —          390,985
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     306,382      1,452,463      2,406,227      1,937,607      1,465,984      2,312,678      —          —          9,881,341

Lease financing

                          

Pass

     247,246      970,143      686,909      389,597      205,845      115,862      32,369      148,755      2,796,726

Special mention

     848      14,307      8,802      5,459      4,670      2,461      —          4,586      41,133

Substandard

     1,023      10,122      35,382      30,848      18,302      18,751      —          4,339      118,767
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total lease financing

     249,117      994,572      731,093      425,904      228,817      137,074      32,369      157,680      2,956,626
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,854,354      5,569,528      5,248,761      3,534,609      2,298,129      3,156,115      3,822,927      210,245      25,694,668

Consumer loan portfolio:

                          

Residential mortgage

                          

Pass

     710,828      2,207,173      860,827      510,015      361,669      1,780,396      —          —          6,430,908

Substandard

     —          3,338      8,056      11,920      3,198      53,561      —          —          80,073
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total residential mortgage

     710,828      2,210,511      868,883      521,935      364,867      1,833,957      —          —          6,510,981

Home equity

                          

Pass

     1,362      20,638      44,156      42,176      34,373      135,924      2,503,856      7,331      2,789,816

Substandard

     22      847      934      445      488      6,923      63,920      747      74,326
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity

     1,384      21,485      45,090      42,621      34,861      142,847      2,567,776      8,078      2,864,142
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer installment

                          

Pass

     65,000      183,103      335,641      171,972      155,700      212,480      20,871      62      1,144,829

Substandard

     —          134      403      340      514      4,815      193      —          6,399
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer installment

     65,000      183,237      336,044      172,312      156,214      217,295      21,064      62      1,151,228
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     777,212      2,415,233      1,250,017      736,868      555,942      2,194,099      2,588,840      8,140      10,526,351
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases

   $ 2,631,566    $ 7,984,761    $ 6,498,778    $ 4,271,477    $ 2,854,071    $ 5,350,214    $ 6,411,767    $ 218,385    $ 36,221,019
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

This balance includes $32.4 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 $210.2 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 was provided over time, and all equipment required by the lease has been provided to the respective lessees in current or previous accounting periods.

 

19


     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)
        

December 31, 2020

   2020      2019      2018      2017      2016      2015 and
Prior
     Total  

Commercial loan and lease portfolio:

                          

Commercial and industrial

                          

Pass

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

Special mention

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

Substandard

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial

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

Commercial real estate

                          

Pass

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

Special mention

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

Substandard

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

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

Lease financing

                          

Pass

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

Special mention

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

Substandard

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total lease financing

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

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

Consumer loan portfolio:

                          

Residential mortgage

                          

Pass

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

Special mention

     —          —          —          —          —          112      —          —          112

Substandard

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total residential mortgage

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

Home equity

                          

Pass

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

Special mention

     —          —          —          —          —          —          —          —          —    

Substandard

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer installment

                          

Pass

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

Special mention

     —          —          —          —          —          —          —          —          —    

Substandard

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer installment

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

(2)

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

 

20


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. 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 March 31,  
    2021     2020  

(In thousands)

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

Commercial loan and lease portfolio:

       

Commercial and industrial

  $ 2,491   $ 2,491   $ 5,751   $ 5,751

Commercial real estate

    1,700     1,700     106     106
 

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial loan and lease portfolio

    4,191     4,191     5,857     5,857
 

 

 

   

 

 

   

 

 

   

 

 

 

Consumer loan portfolio:

       

Residential mortgage

    1,126     1,126     3,222     3,157

Home equity

    334     334     997     996

Consumer installment

    44     44     376     353
 

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loan portfolio

    1,504     1,504     4,595     4,506
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 5,695   $ 5,695   $ 10,452   $ 10,363
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents TDR loans:

 

     At March 31, 2021      At December 31, 2020  

(In thousands)

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

Commercial loan and lease portfolio

   $ 12,121    $ 21,554    $ 33,675    $ 35,697    $ 23,575    $ 59,272

Consumer loan portfolio

     17,154      19,700      36,854      16,658      22,804      39,462
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 29,275    $ 41,254    $ 70,529    $ 52,355    $ 46,379    $ 98,734
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $1.3 million and $2.6 million at March 31, 2021 and December 31, 2020, 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 do not share similar risk characteristics with other loans and follow the Corporation’s loan reserve policies for individually evaluated loans.

 

21


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 March 31,  

(In thousands)

  2021     2020  

Defaulted TDR loan balances modified during the applicable period

   

Commercial loan and lease portfolio:

   

Commercial and industrial

  $ 1,515   $ —  

Commercial real estate

    1,228     —    
 

 

 

   

 

 

 

Total commercial loan and lease portfolio

    2,743     —    
 

 

 

   

 

 

 

Consumer loan portfolio:

   

Residential mortgage

    197     630

Home equity

    198     59

Consumer installment

    34     —    
 

 

 

   

 

 

 

Total consumer loan portfolio

    429     689
 

 

 

   

 

 

 

Defaulted TDR loan balances

  $ 3,172   $ 689
 

 

 

   

 

 

 

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

 

(In thousands)

   At March 31, 2021      At December 31, 2020  

Other real estate owned

   $ 32,115    $ 33,192

Repossessed and returned assets

     8,501      8,932

Consumer loans in process of foreclosure

     24,173      14,790

Other real estate owned and repossessed and returned assets were written down $816 thousand and $842 thousand and during the three months ended March 31, 2021 and March 31, 2020, respectively. Other real estate owned and repossessed and returned assets are included in other assets on the Consolidated Statements of Financial Condition.

Note 9. Goodwill

Goodwill was as follows:

 

(In thousands)

   At March 31, 2021      At December 31, 2020  

Goodwill related to consumer banking segment

   $ 771,555    $ 771,555

Goodwill related to commercial banking segment

     608,335      541,491
  

 

 

    

 

 

 

Goodwill, net

   $ 1,379,890    $ 1,313,046
  

 

 

    

 

 

 

During the three months ended March 31, 2021, the Corporation recorded additional goodwill in the amount of $66.8 million related to the CEC business combination. There was no impairment of goodwill for the three months ended March 31, 2021 and 2020.

 

22


Note 10. Loan Servicing Rights

Information regarding LSRs was as follows:

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

Balance, beginning of period

   $ 38,303    $ 56,313

New servicing assets created

     4,531      2,451

Impairment (charge) recovery

     7,637      (8,236

Amortization

     (6,320      (3,245
  

 

 

    

 

 

 

Balance, end of period

   $ 44,151    $ 47,283
  

 

 

    

 

 

 

Valuation allowance, end of period

   $ (13,850    $ (12,118
  

 

 

    

 

 

 

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

   $ 6,068,120    $ 6,444,101
  

 

 

    

 

 

 

Total loan servicing, late fee and other ancillary fee income, included in mortgage banking income, related to loans serviced for others that have servicing rights capitalized was $4.0 million for the three months ended March 31, 2021 and $4.2 million for the three months ended March 31, 2020.

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

The Corporation invests in qualified affordable housing projects and 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 $5.9 million and $5.3 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense was more than offset by tax credits and other tax benefits of $7.9 million and $6.6 million for the three months ended March 31, 2021 and 2020, respectively. The Corporation’s remaining investment in qualified affordable housing projects totaled $222.1 million and $214.3 million at March 31, 2021 and December 31, 2020, 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 historic projects and Ohio historic preservation tax credits totaled $50.2 million and $48.6 million at March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, $0.6 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 $0.5 million. During the three months ended March 31, 2020, $0.3 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 $0.2 million. During the three months ended March 31, 2020, state tax credits, inclusive of impairment, totaled $0.4 million.

The Corporation’s unfunded equity contributions relating to investments in qualified affordable housing projects and historic projects are included in other liabilities. The Corporation’s remaining unfunded equity contributions totaled $109.4 million and $107.4 million at March 31, 2021 and December 31, 2020, 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.

 

23


Investments in qualified affordable housing projects and 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 March 31, 2021     At December 31, 2020  

(Dollars in thousands)

  Amount     Weighted-average
Rate
    Amount     Weighted-average
Rate
 

FHLB advances

  $ 1,200,000     0.29   $ 400,000     0.33

Collateralized Deposits

    223,695     0.07     217,363     0.11

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

    2,388     2.45     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

  $ 1,426,083     0.26   $ 617,363     0.25
 

 

 

   

 

 

   

 

 

   

 

 

 

Long-term borrowings were as follows:

 

(In thousands)

   At March 31, 2021      At December 31, 2020  

FHLB advances

   $ 859,335    $ 709,848

Subordinated debt obligations

     583,312      586,145

Discounted lease rentals

     73,222      75,770

Finance lease obligation

     2,947      2,969
  

 

 

    

 

 

 

Total long-term borrowings

   $ 1,518,816    $ 1,374,732
  

 

 

    

 

 

 

At March 31, 2021, TCF Bank had pledged $13.0 billion of loans secured by consumer and commercial real estate to provide borrowing capacity from the FHLB.

At March 31, 2021, TCF Bank had pledged $3.4 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 March 31, 2021.

The contractual maturities of long-term borrowings at March 31, 2021 were as follows:

 

(In thousands)

      

Remainder of 2021

   $ 4,339

2022

     779,845

2023

     25,099

2024

     15,996

2025

     373,772

Thereafter

     319,765
  

 

 

 

Total long-term borrowings

   $ 1,518,816
  

 

 

 

 

24


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 March 31,  
    2021     2020  

(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

  $ (237,054   $ 56,371   $ (180,683   $ 150,744   $ (35,607   $ 115,137

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

           

Total interest income

    (44     10     (34     754     (177     577

Net gains (losses) on investment securities

    —         —         —         —         —         —    

Other noninterest expense

    137     (32     105     173     (40     133
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reclassified from accumulated other comprehensive income (loss)

    93     (22     71     927     (217     710
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (236,961     56,349     (180,612     151,671     (35,824     115,847
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recognized postretirement prior service cost:

           

Reclassification of amortization of prior service cost to other noninterest expense

    (23     5     (18     (12     3     (9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustment(1)

    2,170     —         2,170     (14,426     —         (14,426
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized gains (losses) on net investment hedges

    (2,046     487   $ (1,559     13,695     (3,214     10,481
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

  $ (236,860   $ 56,841   $ (180,019   $ 150,928   $ (39,035   $ 111,893
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 March 31, 2021

          

Balance, beginning of period

   $ 182,488   $ 5,605   $ (5,803   $ 383   $ 182,673

Other comprehensive income (loss)

     (180,683     (1,559     2,170     —         (180,072

Amounts reclassified from accumulated other comprehensive income (loss)

     71     —         —         (18     53
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     (180,612     (1,559     2,170     (18     (180,019
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 1,876   $ 4,046   $ (3,633   $ 365   $ 2,654
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At or For the Three Months Ended March 31, 2020

          

Balance, beginning of period

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

Other comprehensive income (loss)

     115,137     10,481     (14,426     —         111,192

Amounts reclassified from accumulated other comprehensive income (loss)

     710     —         —         (9     701
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     115,847     10,481     (14,426     (9     111,893
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 171,945   $ 20,281   $ (26,123   $ 67   $ 166,170
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


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 $207.8 million at March 31, 2021, 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           Minimum  
     At March 31,     At December 31,     At March 31,     At December 31,     Well-capitalized     Capital  

(Dollars in thousands)

   2021     2020     2021     2020     Standard     Requirement(1)  

Regulatory Capital:

            

Common equity Tier 1 capital

   $ 4,101,896   $ 4,103,007   $ 4,095,564   $ 4,093,974    

Tier 1 capital

     4,299,135     4,290,793     4,123,501     4,112,458    

Total capital

     4,994,676     5,026,611     4,799,935     4,831,026    

Regulatory Capital Ratios:

            

Common equity Tier 1 capital ratio

     11.06     11.45     11.06     11.45     6.50     4.50

Tier 1 risk-based capital ratio

     11.59     11.98     11.14     11.50     8.00     6.00

Total risk-based capital ratio

     13.47     14.03     12.96     13.51     10.00     8.00

Tier 1 leverage ratio

     9.09     9.34     8.73     8.97     5.00     4.00

 

(1)

Excludes capital conservation buffer of 2.5% at both March 31, 2021 and December 31, 2020.

 

26


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 March 31, 2021  
          Fair Value  

(In thousands)

  Notional Amount(1)     Derivative Assets     Derivative Liabilities  

Derivatives designated as hedging instruments

     

Interest rate contract

  $ 150,000   $ —       $ 118

Forward foreign exchange contracts

    210,856     373     1,400
   

 

 

   

 

 

 

Total derivatives designated as hedging instruments

      373     1,518
   

 

 

   

 

 

 

Derivatives not designated as hedging instruments

     

Interest rate contracts

  $ 6,297,778   $ 164,438   $ 21,827

Risk participation agreements

    549,262     27     63

Forward foreign exchange contracts

    75,267     820     105

Interest rate lock commitments

    465,180     7,073     166

Forward loan sales commitments

    460,280     5,560     45

Power Equity CDs

    10,450     300     300

Swap agreement

    12,652     —         286
   

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

      178,218     22,792
   

 

 

   

 

 

 

Total derivatives before netting

      178,591     24,310

Netting(2)

      (781     (627

Total derivatives, net

    $ 177,810   $ 23,683
   

 

 

   

 

 

 

 

(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, 2020  
          Fair Value  

(In thousands)

  Notional Amount(1)     Derivative Assets     Derivative Liabilities  

Derivatives designated as hedging instruments

     

Interest rate contract

  $ 150,000   $ 59   $ —    

Forward foreign exchange contracts

    207,515     —         1,521
   

 

 

   

 

 

 

Total derivatives designated as hedging instruments

      59     1,521
   

 

 

   

 

 

 

Derivatives not designated as hedging instruments

     

Interest rate contracts

    6,140,464     248,208     14,681

Risk participation agreements

    470,670     62     125

Forward foreign exchange contracts

    90,647     11     865

Interest rate lock commitments

    447,278     14,565     4

Forward loan sales commitments

    535,244     37     3,411

Power Equity CD

    16,752     459     459

Swap agreement

    12,652     —         66
   

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

      263,342     19,611
   

 

 

   

 

 

 

Total derivatives before netting

      263,401     21,132

Netting(2)

      (52     (1,876
   

 

 

   

 

 

 

Total derivatives, net

    $ 263,349   $ 19,256
   

 

 

   

 

 

 

 

(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.

 

27


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 March 31, 2021  

(In thousands)

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

Derivative assets

        

Interest rate contracts

   $ 164,438    $ —      $ 164,438

Risk participation agreements

     27      —          27

Forward foreign exchange contracts

     1,193      (570      623

Interest rate lock commitments

     7,073      (166      6,907

Forward loan sales commitments

     5,560      (45      5,515

Power Equity CDs

     300         300
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 178,591    $ (781    $ 177,810
  

 

 

    

 

 

    

 

 

 

Derivative liabilities

        

Interest rate contracts

   $ 21,945    $ —      $ 21,945

Risk participation agreements

     63      —          63

Forward foreign exchange contracts

     1,505      (130      1,375

Interest rate lock commitments

     166      (166      —    

Forward loan sales commitments

     45      (45      —    

Power Equity CDs

     300         300

Swap agreement

     286      (286      —    
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

   $ 24,310    $ (627    $ 23,683
  

 

 

    

 

 

    

 

 

 

 

(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, 2020  

(In thousands)

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

Derivative assets

        

Interest rate contracts

   $ 248,267    $ —      $ 248,267

Risk participation agreements

     62      —          62

Forward foreign exchange contracts

     11      (11      —    

Interest rate lock commitments

     14,565      (4      14,561

Forward loan sales commitments

     37      (37      —    

Power Equity CDs

     459      —          459
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 263,401    $ (52    $ 263,349
  

 

 

    

 

 

    

 

 

 

Derivative liabilities

        

Interest rate contracts

   $ 14,681    $ —      $ 14,681

Risk participation agreements

     125      —          125

Forward foreign exchange contracts

     2,386      (1,769      617

Interest rate lock commitments

     4      (4      —    

Forward loan sales commitments

     3,411      (37      3,374

Power Equity CD

     459      —          459

Swap agreement

     66      (66      —    
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

   $ 21,132    $ (1,876    $ 19,256
  

 

 

    

 

 

    

 

 

 

 

(1)

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

 

28


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 March 31, 2021     At December 31, 2020     At March 31, 2021     At December 31, 2020  

Subordinated bank note - 2025

  $ 156,829   $ 159,888   $ 7,857   $ 10,975
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table summarizes the effect of fair value hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2021 and 2020.

 

    Three Months Ended March 31,  

(In thousands)

  2021     2020  

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

   

Interest expense on borrowings

  $ 10,019   $ 26,492

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

   

Hedged item

    3,118     (8,830

Derivative designated as a hedging instrument

    (3,176     8,936
 

 

 

   

 

 

 

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

  $ (58   $ 106
 

 

 

   

 

 

 

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

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

Forward foreign exchange contracts

   $ (2,046    $ 13,695
  

 

 

    

 

 

 

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 March 31,  

(In thousands)

  

Location of Gain (Loss)

   2021      2020  

Interest rate contracts

   Other noninterest income    $ 255    $ 1,662

Risk participation agreements

   Other noninterest expense      1,607      4,326

Forward foreign exchange contracts

   Other noninterest expense      10      18,713

Interest rate lock commitments

   Mortgage banking income      (7,189      10,378

Forward loan sales commitments

   Mortgage banking income      8,889      (8,545

Swap agreement

   Other noninterest income      (288      (1
     

 

 

    

 

 

 

Net gain (loss) recognized

      $ 3,284    $ 26,533
     

 

 

    

 

 

 

At March 31, 2021 and December 31, 2020, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $26.8 million and $35.0 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 $535 thousand and $699 thousand in additional collateral at March 31, 2021 and December 31, 2020, respectively. There were no forward foreign exchange contracts containing credit risk-related features in a liability position at both March 31, 2021 and December 31, 2020.

At March 31, 2021, the Corporation had posted $65.9 million and $340 thousand of cash collateral related to its interest rate contracts and forward foreign exchange contracts, respectively, and received $440 thousand of cash collateral related to its forward foreign exchange contracts.

 

29


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).

 

30


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 related to the sale of Legacy TCF’s Visa Class B stock is categorized as Level 3. 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.

 

31


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

 

     March 31, 2021  

(In thousands)

   Level 1      Level 2      Level 3      Total  

Assets

           

Investment securities available-for-sale

   $ —        $ 8,403,321    $ 467    $ 8,403,788

Loans held-for-sale

     —          107,417      —          107,417

Interest-only strips

     —          —          6,737      6,737

Derivative assets:(1)

           

Interest rate contracts

     —          164,438      —          164,438

Risk participation agreements

     —          27      —          27

Forward foreign exchange contracts

     —          1,193      —          1,193

Interest rate lock commitments

     —          7,073      —          7,073

Forward loan sales commitments

     —          5,560      —          5,560

Power Equity CDs

     —          300      —          300
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative assets

     —          178,591      —          178,591

Assets held in trust for deferred compensation plans

     49,669      —          —          49,669
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 49,669    $ 8,689,329    $ 7,204    $ 8,746,202
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative liabilities:(1)

           

Interest rate contracts

   $ —        $ 21,945    $ —        $ 21,945

Risk participation agreements

     —          63      —          63

Forward foreign exchange contracts

     —          1,505      —          1,505

Interest rate lock commitments

     —          166      —          166

Forward loan sales commitments

     —          45      —          45

Power Equity CDs

     —          300      —          300

Swap agreement

     —          —          286      286
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative liabilities

     —          24,024      286      24,310

Liabilities held in trust for deferred compensation plans

     49,669      —          —          49,669
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 49,669    $ 24,024    $ 286    $ 73,979
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

32


     December 31, 2020  

(In thousands)

   Level 1      Level 2      Level 3      Total  

Assets

           

Investment securities available-for-sale

   $ —        $ 8,284,219    $ 504    $ 8,284,723

Loans held-for-sale

     —          221,784      —          221,784

Interest-only strips

     —          —          7,823      7,823

Derivative assets:(1)

           

Interest rate contracts

     —          248,267      —          248,267

Risk participation agreements

     —          62      —          62

Forward foreign exchange contracts

     —          11      —          11

Interest rate lock commitments

     —          14,565      —          14,565

Forward loan sales commitments

     —          37      —          37

Power Equity CDs

     —          459      —          459
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative assets

     —          263,401      —          263,401

Assets held in trust for deferred compensation plans

     48,659      —          —          48,659
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 48,659    $ 8,769,404    $ 8,327    $ 8,826,390
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative liabilities:(1)

           

Interest rate contracts

   $ —        $ 14,681    $ —        $ 14,681

Risk participation agreements

     —          125      —          125

Forward foreign exchange contracts

     —          2,386      —          2,386

Interest rate lock commitments

     —          4      —          4

Forward loan sales commitments

     —          3,411      —          3,411

Power Equity CDs

     —          459      —          459

Swap agreement

     —          —          66      66
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative liabilities

     —          21,066      66      21,132

Liabilities held in trust for deferred compensation plans

     48,659      —          —          48,659
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 48,659    $ 21,066    $ 66    $ 69,791
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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:

 

33


(In thousands)

   Investment
securities
available-for-sale
     Interest-only strips      Swap agreement  

At or For the Three Months Ended March 31, 2021

        

Asset (liability) balance, beginning of period

   $ 504    $ 7,823    $ (66

Total net gains (losses) included in:

        

Net income

     —          144      —    

Other comprehensive income (loss)

     (37      (181      —    

Originations

     —          —          (288

Principal paydowns / settlements

     —          (1,049      68
  

 

 

    

 

 

    

 

 

 

Asset (liability) balance, end of period

   $ 467    $ 6,737    $ (286
  

 

 

    

 

 

    

 

 

 

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

   $ (37    $ (181    $ —  
  

 

 

    

 

 

    

 

 

 

At or For the Three Months Ended March 31, 2020

        

Asset (liability) balance, beginning of period

   $ 433    $ 12,813    $ (356

Total net gains (losses) included in:

        

Net income

     1      159      (1

Other comprehensive income (loss)

     (31      (348      —    

Principal paydowns / settlements

     —          (1,673      71
  

 

 

    

 

 

    

 

 

 

Asset (liability) balance, end of period

   $ 403    $ 10,951    $ (286
  

 

 

    

 

 

    

 

 

 

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

   $ (31    $ (348    $ —  
  

 

 

    

 

 

    

 

 

 

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 of 10%.

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 8% to 43%. 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.

 

34


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 March 31, 2021 and December 31, 2020.

 

(In thousands)

   Level 1      Level 2      Level 3      Total  

At March 31, 2021

           

Loans and leases

   $ —      $ —      $ 602,723    $ 602,723

Loan servicing rights

     —          —          44,151      44,151

Other real estate owned

     —          —          14,072      14,072

Repossessed and returned assets

     —          6,348      —          6,348
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring fair value measurements

   $ —      $ 6,348    $ 660,946    $ 667,294
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2020

           

Loans and leases

   $ —      $ —      $ 592,133    $ 592,133

Loan servicing rights

     —          —          38,303      38,303

Other real estate owned

     —          —          14,575      14,575

Repossessed and returned assets

     —          7,332      —          7,332
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring fair value measurements

   $ —      $ 7,332    $ 645,011    $ 652,343
  

 

 

    

 

 

    

 

 

    

 

 

 

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)

   March 31, 2021      December 31, 2020  

Fair value carrying amount

   $ 107,417    $ 221,784

Aggregate unpaid principal amount

     105,019      210,311
  

 

 

    

 

 

 

Fair value carrying amount less aggregate unpaid principal

   $ 2,398    $ 11,473
  

 

 

    

 

 

 

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 March 31, 2021 and December 31, 2020. 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 $9.5 million for the three months ended March 31, 2021 and $15.2 million for the same period in 2020, and are included in mortgage banking income. These amounts exclude the impacts from the interest rate lock commitments and forward loan sales commitments which are also included in mortgage banking income.

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 March 31, 2021 and December 31, 2020 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.

 

35


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 March 31, 2021  
     Carrying      Estimated Fair Value  

(In thousands)

   Amount      Level 1      Level 2      Level 3      Total  

Financial instrument assets

              

FHLB and FRB stocks

   $ 358,414    $ —      $ 358,414    $ —      $ 358,414

Investment securities held-to-maturity

     209,778      —          208,784      3,627      212,411

Loans and leases held-for-sale

     232      —          —          233      233

Net loans(1)

     32,806,406      —          —          32,983,379      32,983,379

Securitization receivable(2)

     19,992      —          —          19,992      19,992

Deferred fees on commitments to extend credit(2)

     18,477      —          18,477      —          18,477
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument assets

   $ 33,413,299    $ —      $ 585,675    $ 33,007,231    $ 33,592,906
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial instrument liabilities

              

Certificates of deposits

   $ 4,665,211    $ —      $ 4,670,257    $ —      $ 4,670,257

Long-term borrowings

     1,518,816      —          1,562,225      —          1,562,225
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument liabilities

   $ 6,184,027    $ —      $ 6,232,482    $ —      $ 6,232,482
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

(2)

Carrying amounts are included in other assets.

 

     At December 31, 2020  
     Carrying      Estimated Fair Value  

(In thousands)

   Amount      Level 1      Level 2      Level 3      Total  

Financial instrument assets

              

FHLB and FRB stocks

   $ 320,436    $ —      $ 320,436    $ —      $ 320,436

Investment securities held-to-maturity

     184,359      —          190,141      3,413      193,554

Loans held-for-sale

     244      —          —          248      248

Net loans(1)

     31,164,287      —          —          31,434,749      31,434,749

Securitization receivable(2)

     19,949      —          —          19,916      19,916

Deferred fees on commitments to extend credit(2)

     20,002      —          20,002      —          20,002
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument assets

   $ 31,709,277    $ —      $ 530,579    $ 31,458,326    $ 31,988,905
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial instrument liabilities

              

Certificates of deposits

   $ 5,524,381    $ —      $ 5,534,751    $ —      $ 5,534,751

Long-term borrowings

     1,374,732      —          1,416,355      —          1,416,355
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial instrument liabilities

   $ 6,899,113    $ —      $ 6,951,106    $ —      $ 6,951,106
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

(2)

Carrying amounts are included in other assets.

Note 17. Revenue from Contracts with Customers

The Corporation earns revenue from various sources, including interest and fees from customers and 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.

 

36


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 and 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 the performance obligation is satisfied with related revenue 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 March 31, 2021  
     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

   $ 22,560    $ 3,007    $ —      $ 328    $ 25,895

Wealth management revenue

     1,919      —          —          5,025      6,944

Card and ATM revenue

     21,214      29      —          3,418      24,661

Other noninterest income

     1,755      1,785      30      70,990      74,560
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 47,448    $ 4,821    $ 30    $ 79,761    $ 132,060
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

37


     Three Months Ended March 31, 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

   $ 31,828    $ 2,555    $ —      $ 214    $ 34,597

Wealth management revenue

     1,110      —          —          5,041      6,151

Card and ATM revenue

     19,182      2      —          2,501      21,685

Other noninterest income

     1,004      2,405      359      70,762      74,530
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 53,124    $ 4,962    $ 359    $ 78,518    $ 136,963
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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. Noninterest income is 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 TCF/Chemical 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 March 31, 2021, there were 1,029,723 shares reserved for issuance under the Legacy TCF Omnibus Incentive Plan and there were 639,366 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 $6.2 million for the three months ended March 31, 2021 and $4.7 million for the same period in 2020. The excess tax realized from share-based compensation transactions during the three months ended March 31, 2021 was a benefit of $161 thousand and a benefit of $677 thousand for the same period in 2020.

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 March 31, 2021, there were 306,190 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.

 

38


A summary of the activity for RSUs at and for the three months ended March 31, 2021 is presented below:

 

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

Outstanding at December 31, 2020

     2,015,514    $ 31.25

Granted

     686,885      47.41

Forfeited/canceled

     (56,707      32.93

Vested

     (121,476      45.07
  

 

 

    

 

 

 

Outstanding at March 31, 2021

     2,524,216    $ 34.94
  

 

 

    

 

 

 

Unrecognized compensation expense related to RSUs totaled $66.8 million at March 31, 2021 and is expected to be recognized over the remaining weighted-average period of 3.1 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, 2020

     505,162    $ 38.57

Granted

     27,417      47.41

Forfeited/canceled

     (3,983      40.48

Vested

     (50,264      40.38
  

 

 

    

 

 

 

Outstanding at March 31, 2021

     478,332    $ 38.88
  

 

 

    

 

 

 

At March 31, 2021, there were no shares of performance-based restricted stock awards outstanding. Unrecognized stock compensation expense for restricted stock awards was $7.9 million at March 31, 2021 with a weighted-average remaining amortization period of 1.6 years.

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

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

Restricted stock expense related to employees(1)

   $ 5,692    $ 4,724

Restricted stock expense related to directors(2)

     470      —    
  

 

 

    

 

 

 

Total restricted stock expense

   $ 6,162    $ 4,724
  

 

 

    

 

 

 

 

(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 three months ended March 31, 2021 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, 2020

     55,722    $ 41.23      401,636    $ 31.69

Exercised

     —          —          (156,347      27.74

Forfeited/canceled

     (135      53.72      —          —    

Vested

     (43,272      38.00      43,272      38.00
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at March 31, 2021

     12,315    $ 52.46      288,561    $ 35.05
        

 

 

    

 

 

 

Exercisable/vested at March 31, 2021

           288,561    $ 35.05
        

 

 

    

 

 

 

 

39


The weighted-average remaining contractual term was 4.3 years for all outstanding stock options and 4.2 years for exercisable stock options at March 31, 2021.

Note 19. Earnings Per Common Share

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

 

     Three Months Ended March 31,  

(Dollars in thousands, except per share data)

   2021      2020  

Basic earnings per common share

     

Net income attributable to TCF Financial Corporation

   $ 123,336    $ 51,899

Preferred stock dividends

     2,493      2,493
  

 

 

    

 

 

 

Net income available to common shareholders

     120,843      49,406

Less: Earnings allocated to participating securities

     —          —    
  

 

 

    

 

 

 

Earnings allocated to common stock

   $ 120,843    $ 49,406
  

 

 

    

 

 

 

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

     152,159,117      151,902,357
  

 

 

    

 

 

 

Basic earnings per common share

   $ 0.79    $ 0.33
  

 

 

    

 

 

 

Diluted earnings per common share

     

Earnings allocated to common stock

   $ 120,843    $ 49,406
  

 

 

    

 

 

 

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

     152,159,117      151,902,357

Net dilutive effect of:

     

Non-participating restricted stock

     279,308      83,580

Stock options

     102,262      128,080
  

 

 

    

 

 

 

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

     152,540,687      152,114,017
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.79    $ 0.32
  

 

 

    

 

 

 

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

     

Non-participating restricted stock

     324,514      1,173,331

Stock options

     74,376      90,144
  

 

 

    

 

 

 

Note 20. Other Noninterest Income and Expense

Other noninterest income and expense was as follows:

 

     Three Months Ended March 31,  

(In thousands)

   2021      2020  

Other Noninterest Income

     

Interest rate swap mark-to-market adjustment

   $ 1,863    $ 5,988

Other

     9,192      21,739
  

 

 

    

 

 

 

Total other noninterest income

   $ 11,055    $ 27,727
  

 

 

    

 

 

 

Other Noninterest Expense

     

Outside processing

   $ 16,730    $ 13,913

Loan and lease expense

     7,185      7,783

Professional fees

     9,073      6,569

Advertising and marketing

     6,879      8,377

FDIC insurance

     5,688      6,559

Card processing and issuance costs

     4,274      8,690

Other

     35,414      36,855
  

 

 

    

 

 

 

Total other noninterest expense

   $ 85,243    $ 88,746
  

 

 

    

 

 

 

 

40


Note 21. 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 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.

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-taxable 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 March 31, 2021

           

Net interest income

   $ 199,374    $ 174,018    $ 8,435    $ 381,827

Provision (benefit) for credit losses

     4,101      16,455      —          20,556
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     195,273      157,563      8,435      361,271

Noninterest income

     81,390      49,016      1,654      132,060

Noninterest expense

     212,304      110,630      25,748      348,682
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense (benefit)

     64,359      95,949      (15,659      144,649

Income tax expense (benefit)

     13,401      19,568      (13,429      19,540
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) after income tax expense (benefit)

     50,958      76,381      (2,230      125,109

Income attributable to non-controlling interest

     —          1,773      —          1,773

Preferred stock dividends

     —          —          2,493      2,493
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common shareholders

     50,958      74,608      (4,723      120,843
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 13,699,477    $ 25,941,038    $ 9,819,036    $ 49,459,551
  

 

 

    

 

 

    

 

 

    

 

 

 

At or For the Three Months Ended March 31, 2020

           

Net interest income

   $ 193,832    $ 185,986    $ 21,663    $ 401,481

Provision for credit losses

     44,369      52,574      —          96,943
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     149,463      133,412      21,663      304,538

Noninterest income

     81,414      55,773      (224      136,963

Noninterest expense

     228,859      114,455      31,285      374,599
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense (benefit)

     2,018      74,730      (9,846      66,902

Income tax expense (benefit)

     1,982      16,306      (5,202      13,086
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) after income tax expense (benefit)

     36      58,424      (4,644      53,816

Income attributable to non-controlling interest

     —          1,917      —          1,917

Preferred stock dividends

     —          —          2,493      2,493
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common shareholders

     36      56,507      (7,137      49,406
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 14,463,055    $ 24,859,839    $ 9,271,489    $ 48,594,383
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Note 22. 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 March 31, 2021      At December 31, 2020  

Commitments to extend credit:

     

Commercial

   $ 4,441,962    $ 4,396,191

Consumer

     2,113,311      2,126,327
  

 

 

    

 

 

 

Total commitments to extend credit

     6,555,273      6,522,518

Standby letters of credit and guarantees on industrial revenue bonds

     120,779      114,636
  

 

 

    

 

 

 

Total

   $ 6,676,052    $ 6,637,154
  

 

 

    

 

 

 

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 $6.8 million and $7.0 million at March 31, 2021 and December 31, 2020, 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 $6.8 million and $7.0 million at March 31, 2021 and December 31, 2020, respectively. In the event of nonperformance, the Corporation has rights to the underlying collateral securing the loans. At both March 31, 2021 and December 31, 2020 there was no recorded liability.

In addition, the Corporation acquired certain Small Business Administration (“SBA”) guaranteed loans in which the guaranteed portion had been sold to a third party investor. In the event these loans default and the SBA guaranty is no longer intact (i.e. an issue 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 $12.7 million and $13.2 million at March 31, 2021 and December 31, 2020, respectively. In the event of default, the Corporation has rights to the underlying collateral securing the loans. At both March 31, 2021 and December 31, 2020, the Corporation had recorded a liability of $829 thousand in other liabilities.

 

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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 March 31, 2021 and December 31, 2020 the liability recorded in connection with these representations and warranties was $3.0 million and $3.6 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 in the event of a regulatory violation. The COVID-19 pandemic has resulted in novel legal and regulatory risks, including risks in the area of workplace safety, risks related to emergency lending programs and the associated risk of fraud and regulatory activity. 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.

As previously disclosed, following the announcement of our proposed merger with Huntington, ten lawsuits challenging the merger were filed alleging, among other things, that the defendants, including TCF, caused a materially incomplete and misleading joint proxy statement/prospectus relating to the proposed merger to be filed with the SEC in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder and/or in breach of their fiduciary obligations under state law. We refer to the ten lawsuits collectively as the “Merger Litigation.”

TCF and Huntington believe that the claims asserted in the Merger Litigation, including those related to breaches of law or fiduciary duties to shareholders, are without merit and supplemental disclosures are not required or necessary under applicable laws. However, in order to avoid the risk that the Merger Litigation would delay or otherwise adversely affect the merger, and to minimize the costs, risks and uncertainties inherent in defending the lawsuits, and without admitting any liability or wrongdoing, TCF and Huntington agreed to supplement the joint proxy statement/prospectus as described in our Current Report on Form 8-K filed with the SEC on March 12, 2021, and plaintiffs in the Merger Litigation agreed to dismiss their complaints as moot. In the Garfield and Bushansky actions, which were filed as a putative class action, such dismissal was agreed to be with prejudice as to the named plaintiff only and without prejudice to all other members of the putative class. The Stein and Garfield cases were voluntarily dismissed on March 15, 2021, the Curtis case was voluntarily dismissed on March 12, 2021, and the Gallo case was voluntarily dismissed on March 16, 2021.

 

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