Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2021
Business Combinations [Abstract]  
On June 9, 2021, Huntington closed the acquisition of TCF Financial Corporation in an all-stock transaction valued at $7.2 billion. TCF was a financial holding company headquartered in Detroit, Michigan with operations across the Midwest. The acquisition added depth in existing markets and new markets for expansion and brings complimentary businesses together to drive synergies and growth.
Under the terms of the agreement, TCF shareholders received 3.0028 shares of Huntington common stock for each share of TCF common stock. Holders of TCF common stock also received cash in lieu of fractional shares. In addition, each outstanding share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF was converted into one share of a newly created series of preferred stock of Huntington, Series I Preferred Stock.
The acquisition of TCF has been accounted for as a business combination. We recorded the estimate of fair value based on initial valuations available at June 9, 2021. We continue to review these valuations and certain of these estimated fair values are considered preliminary as of September 30, 2021, and subject to adjustment for up to one year after June 9, 2021. While we believe that the information available on June 9, 2021 provided a reasonable basis for estimating fair value, we expect that we may obtain additional information and evidence during the measurement period that would result in changes to the estimated fair value amounts. Valuations subject to change include, but are not limited to, loans and leases, certain deposits, deferred tax assets and liabilities and certain other assets and other liabilities.
The following table provides a preliminary allocation of consideration paid for the fair value of assets acquired and liabilities and equity assumed from TCF as of June 9, 2021.
(dollar amounts in millions) UPB Fair Value
Assets acquired:
Cash and due from banks $ 466 
Interest-bearing deposits at Federal Reserve Bank 719 
Interest-bearing deposits in banks 312 
Available-for-sale securities 8,900 
Other securities 358 
Loans held for sale 363 
Loans and leases:
Commercial and industrial $ 12,726  12,441 
Commercial real estate 8,125  7,869 
Lease financing 2,929  2,912 
Total commercial 23,780  23,222 
Automobile 322  317 
Residential mortgage 6,267  6,273 
Home equity 2,644  2,607 
RV and marine 581  570 
Other consumer 179  167 
Total consumer 9,993  9,934 
Total loans and leases $ 33,773  33,156 
Bank owned life insurance 181 
Premises and equipment 360 
Core deposit intangible 92 
Other intangible assets
Servicing rights 59 
Servicing rights and other intangible assets 157 
Other assets 1,441 
Total assets acquired 46,413 
Liabilities and equity assumed:
Deposits 38,663 
Short-term borrowings 1,306 
Long-term debt 1,516 
Other liabilities 1,049 
Total liabilities 42,534 
Non-controlling interest 22 
Net assets acquired $ 3,857 
Fair value of common stock issued $ 6,998 
Fair value of preferred stock exchange 185 
Total consideration $ 7,183 
Goodwill $ 3,326 
In connection with the acquisition, the Company recorded approximately $3.3 billion of goodwill. The goodwill was the result of expected synergies, operational efficiencies and other factors. Information regarding the allocation of goodwill recorded as a result of the acquisition to the Company’s reportable segments, as well as the carrying amounts and amortization of core deposit and other intangible assets, are provided in Note 7 “Goodwill and Other Intangible Assets” of the Notes to Unaudited Condensed Consolidated Financial Statements.
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Cash and due from banks and interest-bearing deposits in banks: The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.
Loans and leases: Fair values for loans and leases are based on a discounted cash flow methodology that considered factors including the type of loan and lease and related collateral, classification status, fixed or variable interest rate, term, amortization status and current discount rates. Loans and leases are grouped together according to similar characteristics when applying various valuation techniques. The discount rates used for loans and leases are based on current market rates for new originations of comparable loans and leases and include adjustments for liquidity. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows.
CDI: This intangible asset represents the low cost of funding acquired core deposits provide relative to the Company’s marginal cost of funds. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The CDI is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.
Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.
Debt: The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.
Premises and equipment: The fair values of premises are based on a market approach, with Huntington obtaining third-party appraisals and broker opinions of value for land, office and branch space.
Servicing rights: Servicing rights are valued using an option-adjusted spread valuation model to project cash flows over multiple interest rate scenarios which are then discounted at risk-adjusted rates. The model considers portfolio characteristics, prepayment rates, delinquency rates, contractually specified servicing fees, late charges, other ancillary revenue, costs to service and other economic factors.
PCD loans and leases
Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the 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 TCF acquisition with credit deterioration at acquisition:
(dollar amounts in millions) Commercial Consumer Total
Par value (UPB) $ 7,931  $ 1,333  $ 9,264 
ALLL at acquisition (374) (58) (432)
Non-credit (discount) (219) (68) (287)
Fair value $ 7,338  $ 1,207  $ 8,545 
Huntington's operating results for the quarter and year-to-date periods ended September 30, 2021 include the operating results of the acquired assets and assumed liabilities of TCF Financial Corporation subsequent to the acquisition on June 9, 2021. Due to the various conversions of TCF systems during the second quarter 2021, as well as other streamlining and integration of the operating activities into those of the Company, historical reporting for the former TCF operations is impracticable and thus disclosures of the revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to acquisition.
The following table presents unaudited pro forma information as if the acquisition of TCF had occurred on January 1, 2020 under the “Unaudited Pro Forma” columns. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans and leases, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired interest-bearing deposits and long-term debt and the amortization of the CDI that would have resulted had the deposits been acquired as of January 1, 2020. Pro forma results include Huntington acquisition-related expenses which primarily included, but were not limited to, severance costs, professional services, data processing fees, marketing and advertising expenses totaling $234 million and $524 million for the three and nine-months ended September 30, 2021, respectively. Pro forma results also include adjustments for the elimination of TCF’s accretion of the discount (premium) associated with the fair value adjustments to acquired loans and leases, deposits and long-term debt, elimination of TCF's intangible amortization expense, and related income tax effects. The pro forma information does not necessarily reflect the results of operations that would have occurred had Huntington acquired TCF on January 1, 2020. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts.
Unaudited Pro Forma for
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in millions) 2021 2020 2021 2020
Net interest income $ 1,160  $ 1,197  $ 3,625  $ 3,581 
Noninterest income 535  554  1,604  1,586 
Net income attributable to Huntington Bancshares Inc 377  364  1,268  433 
Branch divestiture: In September 2021, Huntington completed the divestiture of 14 branches acquired in the acquisition of TCF and certain related assets and deposit liabilities to Horizon Bank, to satisfy regulatory requirements in connection with the acquisition. Total deposits and loans that were divested to Horizon Bank for the transaction were $847 million and $209 million, respectively.