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Table of Contents



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended
March 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 Commission File No. 000-08185
 
TCF Financial Corporation
(Exact name of registrant as specified in its charter)
Michigan
38-2022454
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
333 W. Fort Street, Suite 1800
Detroit, Michigan 48226
(Address and Zip Code of principal executive offices)
(800) 867-9757
(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock (par value $1 per share)
TCF
The NASDAQ Stock Market
Depositary shares, each representing a 1/1000th interest in a share of the 5.70% Series C Non-Cumulative Perpetual Preferred Stock
TCFCP
The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes                                                    No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes                                                    No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
 
Non-accelerated filer
Smaller reporting company
 
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                                                  No

As of May 1, 2020, there were 152,108,934 shares outstanding of the registrant's common stock, par value $1 per share, its only outstanding class of common stock.


Table of Contents



TABLE OF CONTENTS
 
Description
Page
 
 
Part I - Financial Information
 
 
 
 
 
 
1
 
 
2
 
 
3
 
 
4
 
 
5
 
 
6
 
 
49
 
 
82
 
 
83
 
 
Part II - Other Information
 
 
 
85
 
 
85
 
 
86
 
 
86
 
 
86
 
 
86
 
 
88
 
 
89




Table of Contents



Part I - Financial Information                                                

Item 1. Financial Statements.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
At March 31, 2020
 
At December 31, 2019
 
(Unaudited)
 
 

ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
713,413

 
$
491,787

Interest-bearing deposits with other banks
565,458

 
736,584

Total cash and cash equivalents
1,278,871

 
1,228,371

Federal Home Loan Bank and Federal Reserve Bank stocks, at cost
484,461

 
442,440

Investment securities:
 
 
 
Available-for-sale, at fair value (amortized cost of $6,793,235 and $6,639,277)
7,025,224

 
6,720,001

Held-to-maturity, at amortized cost (fair value of $145,974 and $144,844)
135,619

 
139,445

Total investment securities
7,160,843

 
6,859,446

Loans and leases held-for-sale (includes $206,366 and $91,202 at fair value)
287,177

 
199,786

Loans and leases
35,921,614

 
34,497,464

Allowance for credit losses
(406,383
)
 
(113,052
)
Loans and leases, net
35,515,231

 
34,384,412

Premises and equipment, net
516,454

 
533,138

Goodwill
1,313,046

 
1,299,878

Other intangible assets, net
162,887

 
168,368

Loan servicing rights
47,283

 
56,313

Other assets
1,828,130

 
1,479,401

Total assets
$
48,594,383

 
$
46,651,553

LIABILITIES AND EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
8,237,916

 
$
7,970,590

Interest-bearing
27,561,387

 
26,497,873

Total deposits
35,799,303

 
34,468,463

Short-term borrowings
3,482,535

 
2,669,145

Long-term borrowings
2,600,594

 
2,354,448

Other liabilities
1,056,118

 
1,432,256

Total liabilities
42,938,550

 
40,924,312

Equity
 
 
 
Preferred stock, $0.01 par value, 2,000,000 shares authorized; 7,000 shares issued
169,302

 
169,302

Common stock, $1.00 par value, 220,000,000 shares authorized
 
 
 
Issued - 152,185,984 shares at March 31, 2020 and 152,965,571 shares at December 31, 2019
152,186

 
152,966

Additional paid-in capital
3,433,234

 
3,462,080

Retained earnings
1,732,932

 
1,896,427

Accumulated other comprehensive income
166,170

 
54,277

Other
(28,140
)
 
(28,037
)
Total TCF Financial Corporation shareholders' equity
5,625,684

 
5,707,015

Non-controlling interest
30,149

 
20,226

Total equity
5,655,833

 
5,727,241

Total liabilities and equity
$
48,594,383

 
$
46,651,553

 
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)
2020
 
2019
Interest income
 
 
 
Interest and fees on loans and leases
$
443,096

 
$
283,238

Interest on investment securities:
 
 
 
Taxable
40,920

 
16,666

Tax-exempt
4,349

 
2,684

Interest on loans held-for-sale
1,561

 
825

Interest on other earning assets
5,466

 
3,481

Total interest income
495,392

 
306,894

Interest expense
 
 
 
Interest on deposits
67,419

 
37,608

Interest on borrowings
26,492

 
14,857

Total interest expense
93,911

 
52,465

Net interest income
401,481

 
254,429

Provision for credit losses
96,943

 
10,122

Net interest income after provision for credit losses
304,538

 
244,307

Noninterest income
 
 
 
Leasing revenue
33,565

 
38,165

Fees and service charges on deposit accounts
34,597

 
26,278

Card and ATM revenue
21,685

 
18,659

Net gains on sales of loans and leases
20,590

 
8,217

Servicing fee revenue
6,792

 
5,110

Wealth management revenue
6,151

 

Net gains (losses) on investment securities

 
451

Other
13,583

 
6,624

Total noninterest income
136,963

 
103,504

Noninterest expense
 
 
 
Compensation and employee benefits
171,528

 
123,942

Occupancy and equipment
57,288

 
41,710

Lease financing equipment depreciation
18,450

 
19,256

Net foreclosed real estate and repossessed assets
1,859

 
4,630

Merger-related expenses
36,728

 
9,458

Other
88,746

 
54,079

Total noninterest expense
374,599

 
253,075

Income before income tax expense
66,902

 
94,736

Income tax expense
13,086

 
21,287

Income after income tax expense
53,816

 
73,449

Income attributable to non-controlling interest
1,917

 
2,955

Net income attributable to TCF Financial Corporation
51,899

 
70,494

Preferred stock dividends
2,493

 
2,493

Net income available to common shareholders
$
49,406

 
$
68,001

Earnings per common share
 
 
 
Basic
$
0.33

 
$
0.83

Diluted
0.32

 
0.83

Weighted-average common shares outstanding
 
 
 
Basic
151,902,357

 
82,245,577

Diluted
152,114,017

 
82,245,577

 
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)
2020
 
2019
Net income attributable to TCF Financial Corporation
$
51,899

 
$
70,494

Other comprehensive income (loss), net of tax:
 

 
 

Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips
115,847

 
37,368

Net unrealized gains (losses) on net investment hedges
10,481

 
(2,308
)
Foreign currency translation adjustment
(14,426
)
 
3,567

Recognized postretirement prior service cost
(9
)
 
(8
)
Total other comprehensive income (loss), net of tax
111,893

 
38,619

Comprehensive income
$
163,792

 
$
109,113

 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, 2020 and 2019
 
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 3. Summary of Significant Accounting Policies" for further information.
 
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, 2018
7,000

88,198,460

$
169,302

$
88,198

$
798,627

$
1,766,994

$
(33,138
)
$
(252,182
)
$
2,537,801

$
18,459

$
2,556,260

Net income





70,494



70,494

2,955

73,449

Other comprehensive income (loss), net of tax






38,619


38,619


38,619

Net investment by (distribution to) non-controlling interest









8,038

8,038

Dividends on 5.70% Series C Preferred Stock





(2,493
)


(2,493
)

(2,493
)
Dividends on common stock of $0.30 per common share





(24,294
)


(24,294
)

(24,294
)
Stock compensation plans, net of tax

(135,422
)

(135
)
(10,390
)


6,791

(3,734
)

(3,734
)
Change in shares held in trust for deferred compensation plans, at cost




1,230



(1,230
)



Balance, March 31, 2019
7,000

88,063,038

$
169,302

$
88,063

$
789,467

$
1,810,701

$
5,481

$
(246,621
)
$
2,616,393

$
29,452

$
2,645,845

See accompanying notes to consolidated financial statements.


4




TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
 
Quarter Ended March 31,
(In thousands)
2020
 
2019
Cash flows from operating activities
 
 
 
Net income
$
53,816

 
$
73,449

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

 
 

Provision for credit losses
96,943

 
10,122

Share-based compensation expense
5,647

 
224

Depreciation and amortization
99,541

 
56,284

Provision (benefit) for deferred income taxes
(3,016
)
 
(1,011
)
Net gains on sales of assets
(28,573
)
 
(14,918
)
Proceeds from sales of loans and leases held-for-sale
268,133

 
80,877

Originations of loans and leases held-for-sale, net of repayments
(362,680
)
 
(72,125
)
Impairment of loan servicing rights
8,236

 

Net change in other assets
(218,094
)
 
(95,861
)
Net change in other liabilities
(405,718
)
 
113,978

Other, net
(14,106
)
 
(11,089
)
Net cash provided by (used in) operating activities
(499,871
)
 
139,930

Cash flows from investing activities
 

 
 

Proceeds from sales of investment securities available-for-sale

 
205,862

Proceeds from maturities of and principal collected on investment securities available-for-sale
311,531

 
50,425

Purchases of investment securities available-for-sale
(412,011
)
 
(597,054
)
Proceeds from maturities of and principal collected on investment securities held-to-maturity
4,152

 
2,469

Purchases of investment securities held-to-maturity

 
(821
)
Redemption of Federal Home Loan Bank stock
144,000

 
26,000

Purchases of Federal Home Loan Bank stock
(186,000
)
 
(38,000
)
Proceeds from sales of loans and leases
287,050

 
194,109

Loan and lease originations and purchases, net of principal collected
(1,717,733
)
 
(521,907
)
Proceeds from sales of other assets
16,494

 
19,644

Purchases of premises and equipment and lease equipment
(23,846
)
 
(41,121
)
Other, net
15,177

 
2,937

Net cash provided by (used in) investing activities
(1,561,186
)
 
(697,457
)
Cash flows from financing activities
 

 
 

Net change in deposits
1,143,905

 
141,885

Net change in short-term borrowings
813,425

 
355,947

Proceeds from long-term borrowings
4,150,000

 
621,328

Payments on long-term borrowings
(3,912,310
)
 
(662,097
)
Payments on liabilities related to acquisition and portfolio purchase

 
(1,000
)
Repurchases of common stock
(33,098
)
 

Dividends paid on preferred stock
(2,493
)
 
(2,493
)
Dividends paid on common stock
(53,578
)
 
(24,294
)
Exercise of stock options
63

 

Payments related to tax-withholding upon conversion of share-based awards
(2,289
)
 
(3,022
)
Net investment by non-controlling interest
7,932

 
8,038

Net cash provided by (used in) financing activities
2,111,557

 
434,292

Net change in cash and due from banks
50,500

 
(123,235
)
Cash and cash equivalents at beginning of period
1,228,371

 
587,057

Cash and cash equivalents at end of period
$
1,278,871

 
$
463,822

Supplemental disclosures of cash flow information
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
76,688

 
$
48,276

Income taxes, net
1,838

 
(140
)
Noncash activities:


 


Transfer of loans and leases to other assets
15,983

 
27,280

Transfer of loans and leases from held-for-investment to held for sale, net
251,855

 
170,537

See accompanying notes to consolidated financial statements.


5




TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

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

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

TCF Bank operates bank branches primarily located in Michigan, Illinois and Minnesota with additional locations in Arizona, Colorado, Ohio, South Dakota and Wisconsin (TCF's "primary banking markets"). Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer and commercial banking, trust and wealth management, and specialty leasing and lending products and services to consumers, small businesses and commercial customers.

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with GAAP. In the opinion of management, the accompanying unaudited consolidated financial statements contain all the significant adjustments, consisting of normal recurring items, considered necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Corporation's most recent Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations at and for the year ended December 31, 2019.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.



6


Note 2. Merger

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

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

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

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

As the legal acquirer, Chemical (now TCF Financial Corporation) issued approximately 81.9 million shares of TCF Financial common stock in connection with the Merger, which represented approximately 53% of the voting interests in TCF Financial upon completion of the Merger. Guidance in Accounting Standards Codification ("ASC") 805-40-30-2 explains that the purchase price in a reverse acquisition is determined based on “the number of equity interests the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition.” The first step in calculating the purchase price in the Merger is to determine the ownership of the combined company following the Merger. The table below summarizes the ownership of the combined company ("TCF Financial") following the Merger, as well as the market capitalization of the combined company using shares of Chemical and Legacy TCF common stock outstanding at July 31, 2019 and Chemical’s closing price on July 31, 2019.
(Dollars in thousands)
 TCF Financial Ownership and Market Value Table
 
 Number of Chemical Outstanding Shares
 
 Percentage Ownership
 
 Market Value at $42.04 Chemical Share Price
Legacy TCF shareholders
81,920,494

 
53.38
%
 
$
3,443,938

Chemical shareholders
71,558,755

 
46.62

 
3,008,330

 Total
153,479,249

 
100.00
%
 
$
6,452,268





7




Next, the hypothetical number of shares Legacy TCF would have to issue to give Chemical owners the same percentage ownership in the combined company is calculated in the table below (based on shares of Legacy TCF common stock outstanding at July 31, 2019):
 
 
 Hypothetical Legacy TCF Ownership
 
 
 Number of Legacy TCF Outstanding Shares
 
 Percentage Ownership
Legacy TCF shareholders
 
161,229,078

 
53.38
%
Chemical shareholders
 
140,835,967

 
46.62

 Total
 
302,065,045

 
100.00
%


Finally, the purchase price is calculated based on the number of hypothetical shares of Legacy TCF common stock issued to Chemical shareholders multiplied by the share price as demonstrated in the table below.
(Dollars in thousands, except per share data)
 
 
Number of hypothetical Legacy TCF shares issued to Chemical shareholders
140,835,967

Legacy TCF market price per share as of July 31, 2019
$
21.38

Purchase price determination of hypothetical Legacy TCF shares issued to Chemical shareholders
3,011,073

Value of Chemical stock options hypothetically converted to options to acquire shares of Legacy TCF common stock
7,335

Cash in lieu of fractional shares
148

Purchase price consideration
$
3,018,556





8




The following table provides the purchase price allocation as of the Merger Date and the assets acquired and liabilities assumed at their estimated fair value as of the Merger Date as recorded by the Corporation. The Corporation recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates are considered preliminary and subject to adjustment for up to one year after the Merger Date. While the Corporation believes that the information available on the Merger Date 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. The measurement period ends on the earlier of one year after the Merger Date or the date the Corporation is able to determine that the Corporation has obtained all necessary information about the facts and circumstances that existed as of Merger Date. The Corporation finalized all valuations and recorded final adjustments during the first quarter of 2020. These adjustments include: (i) changes in the estimated fair value of loans and leases acquired, (ii) changes in deferred tax assets related to fair value estimates and changes in the expected realization of items considered to be net operating loss carryforwards, and (iii) changes in goodwill as a result of the net effect of any adjustments.
(In thousands)
 
Purchase price consideration:
 
Stock
$
3,018,556

Fair value of assets acquired(1)
 
Cash and cash equivalents
975,014

Federal Home Loan Bank and Federal Reserve Bank stocks
218,582

Investment securities
3,774,738

Loans held-for-sale
44,532

Loans and leases
15,713,399

Premises and equipment
140,219

Loan servicing rights
59,567

Other intangible assets
159,532

Net deferred tax asset(2)
65,685

Other assets
552,432

Total assets acquired
21,703,700

Fair value of liabilities assumed(1)
 
Deposits
16,418,215

Short-term borrowings
2,629,426

Long-term borrowings
442,323

Other liabilities
353,469

Total liabilities assumed
19,843,433

Fair value of net identifiable assets
1,860,267

Goodwill resulting from Merger(1)
$
1,158,289

(1)
All amounts were previously reported in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of the following adjustments to fair value based on additional information obtained in the first quarter of 2020: (i) loans and leases ($17.2 million decrease), (ii) net deferred tax asset ($4.0 million increase), and (iii) goodwill resulting from Merger ($13.2 million increase).
(2)
Net deferred tax asset includes acquisition-related fair value adjustments, loss and tax credit carry forwards, mortgage servicing rights and core deposit and customer intangibles.

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

As described in more detail in Note 3. Summary of Significant Accounting Policies below, all Chemical loans and leases were recorded at their estimated fair value as of the Merger Date with no carryover of the related allowance for loans and lease losses. The acquired loans and leases were segregated into two classifications at acquisition, purchased credit impaired (“PCI”) loans accounted for under the provisions of legacy GAAP Accounting Standards Codification ("ASC") Topic 310-30, and purchased nonimpaired loans and leases, also referred to as purchased loans and leases. The excess of cash flows expected to be collected over the estimated fair value of PCI loans is referred to as the accretable yield and is accreted into interest income over the estimated remaining life of the loan using the effective yield method. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayment and estimates of future credit losses expected to be incurred, is referred to as the nonaccretable difference.


9




Information regarding acquired loans and leases included in net loans and leases acquired at the Merger Date was as follows:
(In thousands)
 
PCI loans:
 
Contractually required payments receivable
$
413,176

Nonaccretable difference
(63,014
)
Expected cash flows
350,162

Accretable yield
38,479

Fair value of PCI loans
$
311,683

 
 
Purchased nonimpaired loans and leases:
 
Unpaid principal balance
$
15,636,020

Fair value discount
(234,304
)
Fair value at acquisition
15,401,716

    Total fair value at acquisition
$
15,713,399



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

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

Pro Forma Combined Results of Operations The following pro forma financial information presents the consolidated results of operations of Legacy TCF and Chemical as if the Merger had occurred as of January 1, 2019 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (amortization of premium) associated with the fair value adjustments to acquired loans and leases, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustments to acquired time deposits and borrowings and other debt, amortization of the customer relationship intangibles, and amortization of the core deposit intangibles that would have resulted had the deposits been acquired as of January 1, 2019. Merger-related expenses incurred by TCF during the three months ended March 31, 2020 are not reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had Legacy TCF merged with Chemical at the beginning of 2019. Anticipated cost savings that have not yet been realized are also not reflected in the pro forma amounts for the three months ended March 31, 2020 and 2019.
 
Three Months Ended March 31,
(In thousands, except per share data)
2020
 
2019
Net interest income and other noninterest income
$
538,444

 
$
554,724

Net income
51,899

 
149,068

Net income available to common shareholders
49,406

 
146,575

Earnings per share:
 
 
 
Basic
$
0.33

 
$
0.95

Diluted
0.32

 
0.95





10




Note 3. Summary of Significant Accounting Policies

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

Allowance for Credit Losses The Corporation's reserve methodology used to determine the appropriate level of the allowance for credit losses ("ACL") is a critical accounting estimate. The ACL is maintained at a level believed to be appropriate to provide for the current credit losses expected to be incurred by the portfolio over the life of each financial asset as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. The Corporation individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for impairment, generally this means TDR loans, previously removed TDR loans and any other loans and leases that no longer exhibit similar risk characteristics of one of the pools of financial assets used for collective evaluation. All other loans and leases are evaluated collectively for impairment. A reserve for unfunded credit commitments such as letters of credit, financial guarantees and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition.

Individually evaluated loans and leases are a key component of the ACL. Individually evaluated consumer loans are generally measured at the present value of the expected future cash flows discounted at the loan's initial effective interest rate, unless the loans are collateral dependent, in which case loan impairment is based on the fair value of the collateral less estimated selling costs. Individually evaluated commercial loans and leases are generally measured at the present value of the expected future cash flows discounted at the initial effective interest rate of the loan or lease, unless the loan or lease is collateral dependent, in which case impairment is based on the fair value of collateral less estimated selling costs; however, if payment or satisfaction of the loan or lease is dependent on the operation, rather than the sale of the collateral, the impairment does not include estimated selling costs.
The impairment for all other consumer and commercial loans and leases is evaluated collectively by various characteristics. The collective evaluation of expected losses in these portfolios is based on their probability of default multiplied by historical loss rates, as well as adjustments for forward-looking information, including industry and macroeconomic forecasts. Management has elected to use a twenty-four month reasonable and supportable forecast period with a twelve month straight line reversion to historical loss rates. Factors utilized in the determination of the amount of the allowance include historical loss experience, current economic forecasts and measurement date credit risk characteristics such as product type, lien position, delinquency, collateral value, credit bureau scores and financial statement ratios. The unfunded credit commitments depend on all the same factors, as well as estimates of exposure at default. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly.
Loans and leases are charged off to the extent they are deemed to be uncollectible. Net charge-offs are included in historical data utilized for calculating the ACL. Loans that are not collateral dependent are charged off when deemed uncollectible based on specific facts and circumstances. Residential mortgage and home equity loans are charged off to the estimated fair value of the underlying collateral, less estimated selling costs, no later than 150 days past due. Additional review of the fair value, less estimated costs to sell, compared with the recorded value occurs upon foreclosure and additional charge-offs are recorded if necessary. Consumer installment loans will generally be charged off in full no later than 120 days past due, unless repossession is reasonably assured and in process, in which case the loan would be charged off to the fair value of the collateral, less estimated selling costs. Consumer loans in bankruptcy status may be charged down to the fair value of the collateral, less estimated selling costs, within 60 days past due based on specific criteria. Deposit account overdrafts are reported in other loans. Net losses on uncollectible overdrafts are reported as net charge-offs in the ACL within 60 days from the date of overdraft. Commercial loans and leases that are considered collateral dependent are charged off to estimated fair value, less estimated selling costs when it becomes probable, based on current information and events, that all principal and interest amounts will not be collectible in accordance with their contractual terms.


11




The amount of the ACL significantly depends on management's estimates of key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known.
Accrued interest receivable is included in other assets on the Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances. Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income.
Management maintains a framework of controls over the estimation process for the ACL, including review of collective reserve methodologies for compliance with GAAP. Management has a quarterly process to review the appropriateness of historical observation periods and loss assumptions, risk ratings assigned to commercial loans and leases, and discount rate assumptions used to estimate the fair value of consumer real estate. Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends. Management also maintains controls over the information systems, models and spreadsheets used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive loss rates, the probability of default, loss given default, the inputs to industry and macroeconomic forecasts and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance.
See "Note 8Allowance for Credit Losses and Credit Quality" for further information.

Loans and Leases Acquired in a Business Combination The Corporation records loans and leases acquired in a business combination at fair value at the acquisition date and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. An ACL is also recorded following the Corporation’s ACL accounting policy. Purchased and acquired loans and leases are evaluated at the acquisition date and classified as either (i) loans and leases purchased without evidence of deteriorated credit quality since origination, or (ii) loans and leases purchased that as of the date of acquisition have experienced a more-than-insignificant deterioration in credit quality since origination, referred to as purchased financial assets with credit deterioration ("PCD") assets. In determining whether an acquired asset should be classified as PCD, the Corporation must make numerous assumptions, interpretations and judgments using internal and third-party credit quality information to determine whether or not the asset has experienced more-than-insignificant credit deterioration since origination. This is a point in time assessment and is inherently subjective due to the nature of the available information and judgment involved. Evidence of credit quality deterioration as of the acquisition date may include statistics such as past due and nonaccrual status, recent borrower credit scores and loan-to-value percentages. The ACL estimated for PCD loans and leases as of the acquisition date is recorded as a gross-up of the loan or lease balance and the ACL. Any remaining discount or premium after the gross-up is then recognized as an adjustment to yield over the remaining life of each PCD loan or lease. After the acquisition date, the accounting for acquired loans and leases, including PCD and non-PCD loans and leases, follows the same accounting guidance as loans and leases originated by the Corporation.
See "Note 8. Allowance for Credit Losses and Credit Quality" for further information.

Investment Securities Held-to-Maturity
Investment securities held-to-maturity are carried at cost and adjusted for amortization of premiums or accretion of discounts using a level yield method; however, transfers of investment securities available-for-sale to investment securities held-to-maturity are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of each transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity investment security. Such amounts are then amortized over the remaining life of the transferred investment security as an adjustment of the yield on those securities. The Corporation evaluates investment securities held-to-maturity for credit losses on a quarterly basis, and records any such losses as a component of provision for credit losses in the Consolidated Statements of Income. See "Note 6. Investment Securities" for further information on investment securities held-to-maturity.


12




Investment Securities Available-for-Sale
Investment securities available-for-sale are carried at fair value with the unrealized gains or losses net of related deferred income taxes reported within accumulated other comprehensive income (loss). The cost of investment securities sold is determined on a specific identification basis and gains or losses on sales of investment securities available-for-sale are recognized on trade dates. Discounts and premiums on investment securities available-for-sale are amortized using a level yield method over the expected life of the security, or to the earliest call date for premiums on investment securities with call features. The Corporation evaluates investment securities available-for-sale for credit losses on a quarterly basis, and records any such losses as a component of provision for credit losses in the Consolidated Statements of Income. See "Note 6. Investment Securities" for further information on investment securities available-for-sale.
Recently Adopted Accounting Pronouncements

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

Effective January 1, 2020, the Corporation adopted ASU No. 2019-08, Compensation-Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements-Share-Based Consideration Payable to a Customer, which requires entities to measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which makes targeted improvements to the accounting for collaborative arrangements in response to questions raised as a result of the issuance of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. In addition to providing variable interest entities ("VIE") guidance to private companies, this ASU contains an amendment applicable to all entities which amends how a decision maker or service provider determines whether its fee is a variable interest in a VIE when a related party under common control also has an interest in the VIE. The adoption of this guidance did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. While the adoption of this guidance required adjustments to our fair value disclosures, it did not have a material impact on the consolidated financial statements.

Effective January 1, 2020, the Corporation adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, the Corporation will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance largely remains unchanged. The adoption of this guidance did not have a material impact on the consolidated financial statements.



13




Effective January 1, 2020, the Corporation adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets (including off-balance sheet exposures), including trade and other receivables, debt securities held-to-maturity, loans, net investments in leases and purchased financial assets with credit deterioration. The ASU requires the use of a current expected credit loss ("CECL") methodology to determine the allowance for credit losses for loans and debt securities held-to-maturity. CECL requires loss estimates for the remaining estimated life of the asset to be measured using historical loss data as well as adjustments for current conditions and reasonable and supportable forecasts of future economic conditions. Effective January 1, 2020, the Corporation also adopted the following ASUs, which further amend the original CECL guidance in Topic 326: (i) ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842; (ii) ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics; (iii) ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provides an option to irrevocably elect the fair value option in Subtopic 825-10 to certain instruments within the scope of Subtopic 326-20 upon adoption of Topic 326; (iv) ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarifies that expected recoveries of amounts previously written off or expected to be written off should be included in the estimate of allowance for credit losses for purchased financial assets with credit deterioration, provides certain transition relief for TDR accounting when the discounted cash flow method is used to estimate credit losses, allows entities to elect to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements, and clarifies that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial assets when electing a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of the financial asset and the fair value of collateral securing the financial asset as of the reporting date. These ASUs were adopted on a modified retrospective basis.

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


14




Recently Issued but Not Yet Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides a number of optional expedients to general accounting guidance intended to ease the burden of the accounting impacts of reference rate reform related to contract modifications and hedge accounting elections. Adoption of the expedients is allowed after March 12, 2020 and no later than December 31, 2022. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force), which clarifies the interactions between Topic 321, Topic 323 and Topic 815, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The adoption of this ASU will be required beginning with the Corporation's Quarterly Report on Form 10-Q for the quarter ending March 31, 2021. Early adoption is allowed. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

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

Note 4Cash and Cash Equivalents
 
Cash and cash equivalents include cash and due from banks and interest-bearing deposits in other banks.

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

The Corporation maintains cash balances that are restricted as to their use in accordance with certain obligations. Cash payments received on loans serviced for third parties are generally held in separate accounts until remitted. The Corporation may also retain cash balances for collateral on certain borrowings and derivatives. The Corporation maintained restricted cash totaling $113.8 million and $68.6 million at March 31, 2020 and December 31, 2019, respectively.

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

Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stocks were as follows:
(In thousands)
At March 31, 2020
 
At December 31, 2019
FHLB stock, at cost
$
360,473

 
$
318,473

FRB stock, at cost
123,988

 
123,967

Total investments
$
484,461

 
$
442,440



The investments in FHLB stock are required investments related to the Corporation's membership and borrowings in the FHLB of Des Moines, and additional commitments from the FHLB of Indianapolis and Cincinnati. The Corporation's investments in the FHLB of Des Moines, Indianapolis and Cincinnati could be adversely impacted by the financial operations of the Federal Home Loan Banks and actions of their regulator, the Federal Housing Finance Agency. The amount of FRB stock that TCF Bank is required to hold is based on TCF Bank's capital structure. The Corporation periodically evaluates investments for impairment. There was no impairment of these investments at March 31, 2020 and December 31, 2019.



15




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, 2020
 
 
 
 
 
 
 
Debt securities:
 

 
 

 
 

 
 

Government and government-sponsored enterprises
$
218,996

 
$
80

 
$
496

 
$
218,580

Obligations of states and political subdivisions
850,816

 
16,509

 
769

 
866,556

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential agency
4,701,950

 
194,932

 
13

 
4,896,869

Residential non-agency
327,663

 
415

 
4,544

 
323,534

Commercial agency
653,969

 
27,769

 
2,156

 
679,582

Commercial non-agency
39,390

 
328

 
15

 
39,703

Total mortgage-backed debt securities
5,722,972

 
223,444

 
6,728

 
5,939,688

Corporate debt and trust preferred securities
451

 

 
51

 
400

Total investment securities available-for-sale
$
6,793,235

 
$
240,033

 
$
8,044

 
$
7,025,224

At December 31, 2019
 
 
 
 
 
 
 
Debt securities:
 

 
 

 
 

 
 

Government and government-sponsored enterprises
$
235,045

 
$
18

 
$
678

 
$
234,385

Obligations of states and political subdivisions
852,096

 
12,446

 
687

 
863,855

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential agency
4,492,427

 
68,797

 
6,103

 
4,555,121

Residential non-agency
374,046

 
1,166

 
616

 
374,596

Commercial agency
645,814

 
8,639

 
2,049

 
652,404

Commercial non-agency
39,398

 
17

 
205

 
39,210

Total mortgage-backed debt securities
5,551,685

 
78,619

 
8,973

 
5,621,331

Corporate debt and trust preferred securities
451

 

 
21

 
430

Total investment securities available-for-sale
$
6,639,277

 
$
91,083

 
$
10,359

 
$
6,720,001


 
Investment Securities Held-to-Maturity
(In thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
At March 31, 2020
 
 
 
 
 
 
 
Residential agency mortgage-backed securities
$
131,947

 
$
10,370

 
$
15

 
$
142,302

Corporate debt and trust preferred securities
3,672

 

 

 
3,672

Total investment securities held-to-maturity (1)
$
135,619

 
$
10,370

 
$
15

 
$
145,974

At December 31, 2019
 
 
 
 
 
 
 
Residential agency mortgage-backed securities
$
135,769

 
$
5,576

 
$
177

 
$
141,168

Corporate debt and trust preferred securities
3,676

 

 

 
3,676

Total investment securities held-to-maturity
$
139,445

 
$
5,576

 
$
177

 
$
144,844

(1)
The adoption of CECL was inconsequential to held-to-maturity investment securities. At March 31, 2020 there was no allowance for credit losses for investment securities held-to-maturity.

Accrued interest receivable for investment securities was $25.3 million and $21.6 million at March 31, 2020 and December 31, 2019, respectively, and is is included in other assets on the Consolidated Statements of Financial Condition.



16




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, 2020
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Investment securities available-for-sale
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 

 
 

 
 

 
 

 
 

 
 

Government and government sponsored enterprises
$
182,694

 
$
496

 
$

 
$

 
$
182,694

 
$
496

Obligations of states and political subdivisions
145,406

 
769

 

 

 
145,406

 
769

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
480

 
13

 

 

 
480

 
13

Residential non-agency
251,453

 
4,544

 

 

 
251,453

 
4,544

Commercial agency
89,607

 
2,156

 

 

 
89,607

 
2,156

Commercial non-agency
2,004

 
15

 

 

 
2,004

 
15

Total mortgage-backed debt securities
343,544

 
6,728

 

 

 
343,544

 
6,728

Corporate debt and trust preferred securities
400

 
51

 

 

 
400

 
51

Total investment securities available-for-sale
$
672,044

 
$
8,044

 
$

 
$

 
$
672,044

 
$
8,044

 
At December 31, 2019
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Investment securities available-for-sale
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 

 
 

 
 

 
 

 
 

 
 

Government and government sponsored enterprises
$
226,177

 
$
678

 
$

 
$

 
$
226,177

 
$
678

Obligations of states and political subdivisions
60,639

 
687

 

 

 
60,639

 
687

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
667,511

 
3,586

 
200,534

 
2,517

 
868,045

 
6,103

Residential non-agency
140,403

 
616

 

 

 
140,403

 
616

Commercial agency
176,880

 
2,049

 

 

 
176,880

 
2,049

Commercial non-agency
25,560

 
205

 

 

 
25,560

 
205

Total mortgage-backed debt securities
1,010,354

 
6,456

 
200,534

 
2,517

 
1,210,888

 
8,973

Corporate debt and trust preferred securities
430

 
21

 

 

 
430

 
21

Total investment securities available-for-sale
$
1,297,600

 
$
7,842

 
$
200,534

 
$
2,517

 
$
1,498,134

 
$
10,359



The adoption of CECL did not have a material impact on our accounting for available-for-sale investment securities. At March 31, 2020 there were 598 available-for-sale investment securities in an unrealized loss position. We have assessed each investment security with unrealized losses for credit impairment. As part of that assessment we 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. Unrealized losses on investment securities were due to credit spreads and interest rates.

The gross gains and losses on sales of investment securities were as follows: 
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Gross realized gains
$

 
$
1,622

Gross realized losses

 
1,175

Recoveries on previously impaired investment securities held-to-maturity

 
4

Net gains (losses) on investment securities
$

 
$
451




17




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, 2020
 
At December 31, 2019
(In thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Investment Securities Available-for-Sale
 

 
 

 
 

 
 

Due in one year or less
$
66,096

 
$
66,021

 
$
66,124

 
$
66,112

Due in 1-5 years
188,565

 
189,294

 
191,364

 
192,065

Due in 5-10 years
551,643

 
569,940

 
547,813

 
555,523

Due after 10 years
5,986,931

 
6,199,969

 
5,833,976

 
5,906,301

Total investment securities available-for-sale
$
6,793,235

 
$
7,025,224

 
$
6,639,277

 
$
6,720,001

Investment Securities Held-to-Maturity
 

 
 

 
 

 
 

Due in 1-5 years
$
3,550

 
$
3,550

 
$
3,550

 
$
3,550

Due in 5-10 years
55

 
61

 
58

 
64

Due after 10 years
132,014

 
142,363

 
135,837

 
141,230

Total investment securities held-to-maturity
$
135,619

 
$
145,974

 
$
139,445

 
$
144,844



At March 31, 2020 and December 31, 2019, investment securities with a carrying value of $1.2 billion and $627.0 million, respectively, were pledged as collateral to secure certain deposits and borrowings.

Note 7Loans and Leases

Loans and leases were as follows:
(In thousands)
At March 31, 2020
 
At December 31, 2019
Commercial loan and lease portfolio:
 

 
 

Commercial and industrial
$
12,326,943

 
$
11,439,602

Commercial real estate
9,486,904

 
9,136,870

Lease financing
2,708,998

 
2,699,869

Total commercial loan and lease portfolio
24,522,845

 
23,276,341

Consumer loan portfolio:
 
 
 
Residential mortgage
6,435,314

 
6,179,805

Consumer installment
1,509,953

 
1,542,411

Home equity
3,453,502

 
3,498,907

Total consumer loan portfolio
11,398,769

 
11,221,123

Total loans and leases(1)
$
35,921,614

 
$
34,497,464

(1)
Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $(177.8) million and $(201.5) million at March 31, 2020 and December 31, 2019, respectively.

Accrued interest receivable for loans and leases was $109.4 million and $106.5 million at March 31, 2020 and December 31, 2019, respectively, and is included in other assets on the Consolidated Statements of Financial Condition.

Acquired Loans and Leases The Corporation acquires loans and leases through business combinations and purchases of loan and lease portfolios. These loans and leases are recorded at fair value at acquisition and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. The Corporation purchased jumbo residential mortgage loans at fair value of $423.0 million during the three months ended March 31, 2020, none of which qualified as PCD loans.

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



18




Lease Income The components of total lease income were as follows:
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Interest income - loans and leases:
 
 
 
Interest income on net investment in direct financing and sales-type leases
$
34,156

 
$
32,384

Leasing revenue (noninterest income):
 
 
 
Lease income from operating lease payments
23,902

 
25,399

Profit recorded on commencement date on sales-type leases
3,580

 
7,057

Gains on sales of leased equipment
6,083

 
5,709

Leasing revenue
33,565

 
38,165

Total lease income
$
67,721

 
$
70,549



Loan Sales The following table summarizes the net gains on sales of loans and leases. We retain servicing on a majority of loans sold. See "Note 10. Loan Servicing Rights" for further information.
 
Three Months Ended March 31,
(In millions)
2020
 
2019
Sale proceeds, net
$
555,182

 
$
274,986

Recorded investment in loans and leases sold, including accrued interest
537,180

 
267,109

Other
2,588

 
340

Net gains on sales of loans and leases
$
20,590

 
$
8,217



The interest-only strips on the balance sheet related to loan sales were as follows:
(In thousands)
At March 31, 2020
 
At December 31, 2019
Interest-only strips
$
10,951

 
$
12,813



We recorded $224 thousand of impairment charges on interest-only strips during the three months ended March 31, 2020 and no impairment charges during the three months ended March 31, 2019.

The Corporation's agreements to sell consumer loans typically contain certain representations, warranties and covenants regarding the loans sold or securitized. These representations, warranties and covenants generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer or investor, the loan's compliance with the criteria set forth in the agreement, the manner in which the loans will be serviced, payment delinquency and compliance with applicable laws and regulations. These agreements generally require the repurchase of loans or indemnification in the event we breach these representations, warranties or covenants and such breaches are not cured. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower or the failure to obtain valid title. Losses related to repurchases pursuant to such representations, warranties and covenants were immaterial for the three months ended March 31, 2020 and 2019.



19




Note 8Allowance for Credit Losses and Credit Quality
 
Effective January 1, 2020, the Corporation adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs on a modified retrospective basis. Financial information at or for the quarter ended March 31, 2020 is reflected as such. The historical financial information disclosed is in accordance with ASC Topic 310.

Allowance for Credit Losses The rollforwards of the allowance for credit losses were as follows:
(In thousands)
Consumer Loan Portfolio
 
Commercial Loan and Lease Portfolio
 
Total Loans and Leases
 
Unfunded Commitments(1)
 
Total
At or For the 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
(5,900
)
 
(9,749
)
 
(15,649
)
 

 
(15,649
)
Recoveries
4,760

 
5,412

 
10,172

 

 
10,172

Net (charge-offs) recoveries
(1,140
)
 
(4,337
)
 
(5,477
)
 

 
(5,477
)
Provision for credit losses(2)
40,288

 
52,702

 
92,990

 
3,953

 
96,943

Other

 
(174
)
 
(174
)
 

 
(174
)
Balance, end of period
$
175,057

 
$
231,326

 
$
406,383

 
$
22,188

 
$
428,571

At or For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
80,017

 
$
77,429

 
$
157,446

 
$
1,428

 
$
158,874

Charge-offs
(16,866
)
 
(7,565
)
 
(24,431
)
 

 
(24,431
)
Recoveries
4,857

 
920

 
5,777

 

 
5,777

Net (charge-offs) recoveries
(12,009
)
 
(6,645
)
 
(18,654
)
 

 
(18,654
)
Provision for credit losses(2)
7,258

 
2,864

 
10,122

 
513

 
10,635

Other
(969
)
 
27

 
(942
)
 

 
(942
)
Balance, end of period
$
74,297

 
$
73,675

 
$
147,972

 
$
1,941

 
$
149,913

(1)
Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition.
(2)
As a result of the adoption of CECL, effective January 1, 2020, the provision for credit losses includes the provision for unfunded commitments that was previously included within other noninterest expense.

Additional disclosures previously required by ASC Topic 310 related to the Corporation's December 31, 2019 balances are included as follows.

The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology was as follows:
 
At December 31, 2019
(In thousands)
Consumer Loan Portfolio
 
Commercial Loan and Lease Portfolio
 
Total Loans and Leases
Allowance for loan and lease losses
 
 
 
 
 
Collectively evaluated for impairment
$
26,430

 
$
75,756

 
$
102,186

Individually evaluated for impairment
1,468

 
5,769

 
7,237

Loans acquired with deteriorated credit quality
674

 
2,955

 
3,629

Total
$
28,572

 
$
84,480

 
$
113,052

Loans and leases outstanding
 
 
 
 
 
Collectively evaluated for impairment
$
11,087,534

 
$
22,986,607

 
$
34,074,141

Individually evaluated for impairment
60,694

 
115,843

 
176,537

Loans acquired with deteriorated credit quality
72,895

 
173,891

 
246,786

Total
$
11,221,123

 
$
23,276,341

 
$
34,497,464




20




Information on impaired loans and leases at December 31, 2019 was as follows:
 
At December 31, 2019
(In thousands)
Unpaid
Contractual
Balance
 
Loan and Lease Balance
 
Related
Allowance
Recorded
Impaired loans and leases with an allowance recorded:
 

 
 

 
 

Commercial loan and lease portfolio:
 
 
 
 
 
Commercial and industrial
$
20,069

 
$
20,090

 
$
2,844

Commercial real estate
4,225

 
3,962

 
333

Lease financing
10,956

 
10,956

 
2,592

Total commercial loan and lease portfolio
35,250

 
35,008

 
5,769

Consumer loan portfolio:
 

 
 

 
 

Residential mortgage
24,297

 
22,250

 
1,030

Home equity
9,418

 
8,791

 
438

Total consumer loan portfolio
33,715

 
31,041

 
1,468

Total impaired loans and leases with an allowance recorded
68,965

 
66,049

 
7,237

Impaired loans and leases without an allowance recorded:
 

 
 

 
 

Commercial loan and lease portfolio:
 
 
 
 
 
Commercial and industrial
55,889

 
39,098

 

Commercial real estate
69,143

 
41,737

 

Total commercial loan and lease portfolio
125,032

 
80,835

 

Consumer loan portfolio:
 

 
 

 
 

Residential mortgage
31,142

 
22,594

 

Consumer installment
2,095

 
880

 

Home equity
24,709

 
6,179

 

Total consumer loan portfolio
57,946

 
29,653

 

Total impaired loans and leases without an allowance recorded
182,978

 
110,488

 

Total impaired loans and leases
$
251,943

 
$
176,537

 
$
7,237





21




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. The Corporation's accruing and nonaccrual loans and leases were as follows:
(In thousands)
Current
 
30-89 Days Delinquent and Accruing
 
90 Days or More Delinquent and Accruing
 
Total
 Accruing
 
Nonaccrual(1)
 
Total
At March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Commercial loan and lease portfolio:
 

 
 

 
 

 
 
 
 

 
 
Commercial and industrial
$
12,188,493

 
$
54,183

 
$
110

 
$
12,242,786

 
$
84,157

 
$
12,326,943

Commercial real estate
9,395,692

 
42,738

 
1,442

 
9,439,872

 
47,032

 
9,486,904

Lease financing
2,653,675

 
39,108

 
3,045

 
2,695,828

 
13,170

 
2,708,998

Total commercial loan and lease portfolio
24,237,860

 
136,029

 
4,597

 
24,378,486

 
144,359

 
24,522,845

Consumer loan portfolio:
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
6,350,832

 
21,949

 
553

 
6,373,334

 
61,980

 
6,435,314

Consumer installment
1,504,344

 
4,615

 
5

 
1,508,964

 
989

 
1,509,953

Home equity
3,380,076

 
29,864

 
415

 
3,410,355

 
43,147

 
3,453,502

Total consumer loan portfolio
11,235,252

 
56,428

 
973

 
11,292,653

 
106,116

 
11,398,769

Total
$
35,473,112

 
$
192,457

 
$
5,570

 
$
35,671,139

 
$
250,475

 
$
35,921,614

At December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Commercial loan and lease portfolio:
 

 
 

 
 

 
 
 
 

 
 
Commercial and industrial
$
11,283,832

 
$
29,780

 
$
331

 
$
11,313,943

 
$
53,812

 
$
11,367,755

Commercial real estate
8,993,360

 
10,291

 
1,440

 
9,005,091

 
29,735

 
9,034,826

Lease financing
2,662,354

 
24,657

 
1,901

 
2,688,912

 
10,957

 
2,699,869

Total commercial loan and lease portfolio
22,939,546

 
64,728

 
3,672

 
23,007,946

 
94,504

 
23,102,450

Consumer loan portfolio:
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
6,056,817

 
17,245

 
559

 
6,074,621

 
38,577

 
6,113,198

Consumer installment
1,536,714

 
4,292

 
108

 
1,541,114

 
714

 
1,541,828

Home equity
3,434,771

 
22,568

 

 
3,457,339

 
35,863

 
3,493,202

Total consumer loan portfolio
11,028,302

 
44,105

 
667

 
11,073,074

 
75,154

 
11,148,228

Purchased credit impaired loans(1)
217,206

 
3,843

 
25,737

 
246,786

 

 
246,786

Total
$
34,185,054

 
$
112,676

 
$
30,076

 
$
34,327,806

 
$
169,658

 
$
34,497,464

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



22




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, 2020
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
 
 
Total
Commercial loan and lease portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$

 
$

 
$

 
$
67

 
$
39

 
$
4

 
$

 
$

 
$
110

Commercial real estate

 

 
115

 

 

 
1,327

 

 

 
1,442

Lease financing

 
2,012

 
691

 
152

 
60

 
130

 

 

 
3,045

Total commercial loan and lease portfolio

 
2,012

 
806

 
219

 
99

 
1,461

 

 

 
4,597

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage

 

 

 

 

 
553

 

 

 
553

Consumer installment
5

 

 

 

 

 

 

 

 
5

Home equity

 

 

 

 

 

 
415

 

 
415

Total consumer loan portfolio
5

 

 

 

 

 
553

 
415

 

 
973

Total 90 days or more delinquent and accruing
$
5

 
$
2,012

 
$
806

 
$
219

 
$
99

 
$
2,014

 
$
415

 
$

 
$
5,570


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, 2020
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
 
 
Total
Commercial loan and lease portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
296

 
$
5,192

 
$
12,329

 
$
15,382

 
$
13,883

 
$
29,984

 
$
7,091

 
$

 
$
84,157

Commercial real estate

 
457

 
3,758

 
4,457

 
9,707

 
28,653

 

 

 
47,032

Lease financing

 
1,413

 
2,065

 
4,496

 
1,764

 
2,546

 

 
886

 
13,170

Total commercial loan and lease portfolio
296

 
7,062

 
18,152

 
24,335

 
25,354

 
61,183

 
7,091

 
886

 
144,359

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
267

 
1,517

 
2,383

 
2,673

 
1,857

 
52,338

 

 
945

 
61,980

Consumer installment

 
33

 
241

 
122

 
70

 
438

 
85

 

 
989

Home equity
528

 
1,883

 
684

 
365

 
215

 
4,895

 
33,688

 
889

 
43,147

Total consumer loan portfolio
795

 
3,433

 
3,308

 
3,160

 
2,142

 
57,671

 
33,773

 
1,834

 
106,116

Total nonaccrual loans and leases
$
1,091

 
$
10,495

 
$
21,460

 
$
27,495

 
$
27,496

 
$
118,854

 
$
40,864

 
$
2,720

 
$
250,475





23




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,
 
2020
 
2019
(In thousands)
Average Loan and Lease Balance(1)
 
Interest Income Recognized(1)
 
Average Loan and Lease Balance
 
Interest Income Recognized
Commercial loan and lease portfolio:
 

 
 

 
 

 
 

Commercial and industrial
$
68,985

 
$
1,709

 
$
21,605

 
$
71

Commercial real estate
38,383

 
1,784

 
2,562

 

Lease financing
12,063

 
51

 
9,485

 
34

Total commercial loan and lease portfolio
119,431

 
3,544

 
33,652

 
105

Consumer loan portfolio:
 
 
 
 
 
 
 
Residential mortgage
50,278

 
638

 
34,169

 
78

Consumer installment
852

 
25

 
8,807

 

Home equity
39,505

 
156

 
27,973

 
40

Total consumer loan portfolio
90,635

 
819

 
70,949

 
118

Total nonaccrual loans and leases
$
210,066

 
$
4,363

 
$
104,601

 
$
223


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

In addition to the receivable's payment performance status, credit quality is also analyzed using risk categories, which vary based on the size and type of credit risk exposure and additionally measure liquidity, debt capacity, coverage and payment behavior as shown in the borrower's financial statements. The risk categories also measure the quality of the borrower's management and the repayment support offered by any guarantors. Loan and lease credit classifications are derived from standard regulatory rating definitions, which include: pass, special mention, substandard, doubtful and loss. Substandard and doubtful loans and leases have well-defined weaknesses, but may never result in a loss.


24




The amortized cost basis of loans and leases by credit risk categories 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, 2020
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
 
 
Total
Commercial loan and lease portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass
$
791,458

 
$
2,781,870

 
$
1,607,788

 
$
940,905

 
$
630,425

 
$
917,788

 
$
4,058,569

 
$
40,089

 
$
11,768,892

Special mention
667

 
15,050

 
47,411

 
37,612

 
26,010

 
45,499

 
139,147

 
1,259

 
312,655

Substandard
1,526

 
17,159

 
43,437

 
14,028

 
29,873

 
45,130

 
88,036

 

 
239,189

Doubtful

 

 
1,500

 
4,199

 

 
508

 

 

 
6,207

Total commercial and industrial
793,651

 
2,814,079

 
1,700,136

 
996,744

 
686,308

 
1,008,925

 
4,285,752

 
41,348

 
12,326,943

Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
685,194

 
2,328,888

 
2,141,432

 
1,671,351

 
889,876

 
1,436,544

 
1,077

 

 
9,154,362

Special mention

 
38,094

 
16,882

 
97,826

 
36,102

 
50,891

 

 

 
239,795

Substandard

 
662

 
5,516

 
9,043

 
16,622

 
60,904

 

 

 
92,747

Total commercial real estate
685,194

 
2,367,644

 
2,163,830

 
1,778,220

 
942,600

 
1,548,339

 
1,077

 

 
9,486,904

Lease financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass
262,563

 
935,170

 
549,772

 
357,029

 
212,876

 
89,606

 
44,682

 
200,917

 
2,652,615

Special mention
660

 
5,154

 
3,781

 
4,256

 
2,899

 
2,327

 

 
11,524

 
30,601

Substandard
3,371

 
3,596

 
3,371

 
6,365

 
2,596

 
3,533

 

 
2,950

 
25,782

Total lease financing
266,594

 
943,920

 
556,924

 
367,650

 
218,371

 
95,466

 
44,682

 
215,391

 
2,708,998

Total commercial
1,745,439

 
6,125,643

 
4,420,890

 
3,142,614

 
1,847,279

 
2,652,730

 
4,331,511

 
256,739

 
24,522,845

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass
504,871

 
1,526,611

 
1,045,969

 
668,442

 
618,565

 
1,987,061

 

 
16,554

 
6,368,073

Special mention

 
393

 

 

 

 
382

 

 

 
775

Substandard
267

 
1,517

 
2,599

 
2,807

 
1,857

 
56,474

 

 
945

 
66,466

Total residential mortgage
505,138

 
1,528,521

 
1,048,568

 
671,249

 
620,422

 
2,043,917

 

 
17,499

 
6,435,314

Consumer installment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass
97,037

 
483,133

 
258,519

 
266,110

 
189,150

 
179,147

 
35,851

 

 
1,508,947

Substandard

 
42

 
241

 
122

 
70

 
438

 
93

 

 
1,006

Total consumer installment
97,037

 
483,175

 
258,760

 
266,232

 
189,220

 
179,585

 
35,944

 

 
1,509,953

Home equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass
11,857

 
68,988

 
68,945

 
56,168

 
41,278

 
172,810

 
2,956,158

 
29,015

 
3,405,219

Special mention

 
230

 

 
37

 

 
372

 
30

 

 
669

Substandard
625

 
2,166

 
757

 
365

 
267

 
5,353

 
37,129

 
952

 
47,614

Total home equity
12,482

 
71,384

 
69,702

 
56,570

 
41,545

 
178,535

 
2,993,317

 
29,967

 
3,453,502

Total consumer
614,657

 
2,083,080

 
1,377,030

 
994,051

 
851,187

 
2,402,037

 
3,029,261

 
47,466

 
11,398,769

Total loans and leases
$
2,360,096

 
$
8,208,723

 
$
5,797,920

 
$
4,136,665

 
$
2,698,466

 
$
5,054,767

 
$
7,360,772

 
$
304,205

 
$
35,921,614

(1)
This balance includes $44.7 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 $256.7 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.



25




The recorded investment of loans and leases by credit risk categories as of December 31, 2019 was as follows:
(In thousands)
Pass
 
Special Mention
 
Substandard
 
Total
At December 31, 2019
 
 
 
 
 
 
 
Commercial loan and lease portfolio:
 

 
 

 
 
 
 
Commercial and industrial
$
10,930,939

 
$
315,097

 
$
193,566

 
$
11,439,602

Commercial real estate
8,891,361

 
170,114

 
75,395

 
9,136,870

Lease financing
2,646,874

 
28,091

 
24,904

 
2,699,869

Total commercial loan and lease portfolio
22,469,174

 
513,302

 
293,865

 
23,276,341

Consumer loan portfolio:
 
 
 
 
 
 
 
Residential mortgage
6,135,096

 
565

 
44,144

 
6,179,805

Consumer installment
1,541,524

 

 
887

 
1,542,411

Home equity
3,457,292

 
456

 
41,159

 
3,498,907

Total consumer loan portfolio
11,133,912

 
1,021

 
86,190

 
11,221,123

Total loans and leases
$
33,603,086

 
$
514,323

 
$
380,055

 
$
34,497,464



Troubled Debt Restructurings In certain circumstances, The Corporation may consider modifying the terms of a loan for economic or legal reasons related to the customer's financial difficulties. If the Corporation grants a concession, the modified loan is classified as a troubled debt restructuring ("TDR"). 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. All loans classified as TDR loans are considered to be impaired.

The following table presents the recorded investment of loan modifications first classified as TDRs during the periods presented:
 
Three Months Ended March 31,
 
2020
 
2019
(In thousands)
Pre-modification Investment
 
Post-modification Investment
 
Pre-modification Investment
 
Post-modification Investment
Commercial loan and lease portfolio:
 
 
 
 
 
 
 
Commercial and industrial
$
5,751

 
$
5,751

 
$
1,195

 
$
1,195

Commercial real estate
106

 
106

 
569

 
569

Total commercial loan and lease portfolio
5,857

 
5,857

 
1,764

 
1,764

Consumer loan portfolio:
 
 
 
 
 
 
 
Residential mortgage
3,222

 
3,157

 
1,385

 
1,378

Consumer installment
376

 
353

 

 

Home equity
997

 
996

 
1,666

 
1,654

Total consumer loan portfolio
4,595

 
4,506

 
3,051

 
3,032

Total
$
10,452

 
$
10,363

 
$
4,815

 
$
4,796


The following table presents TDR loans:
 
At March 31, 2020
 
At December 31, 2019
(In thousands)
Accruing
TDR Loans
 
Nonaccrual TDR Loans
 
Total
TDR Loans
 
Accruing
TDR Loans
 
Nonaccrual TDR Loans
 
Total
TDR Loans
Commercial loan and lease portfolio
$
9,655

 
$
10,313

 
$
19,968

 
$
12,986

 
$
5,356

 
$
18,342

Consumer loan portfolio
13,248

 
17,331

 
30,579

 
12,403

 
14,875

 
27,278

Total
$
22,903

 
$
27,644

 
$
50,547

 
$
25,389

 
$
20,231

 
$
45,620



Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $840 thousand and $638 thousand at March 31, 2020 and December 31, 2019, respectively.

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


26




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)
2020
 
2019
Defaulted TDR loan balances modified during the applicable period
 
 
 
Consumer loan portfolio:
 

 
 

Residential mortgage
$
630

 
$
190

Consumer installment

 
536

Home equity
59

 
94

Total consumer loan portfolio
689

 
820

Defaulted TDR loan balances
$
689

 
$
820



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, 2020
 
At December 31, 2019
Other real estate owned
$
38,914

 
$
34,256

Repossessed and returned assets
10,196

 
8,045

Consumer loans in process of foreclosure
18,693

 
17,758



Other real estate owned and repossessed and returned assets were written down $842 thousand and $1.8 million during the three months ended March 31, 2020 and March 31, 2019, respectively, and were included in other assets on the Consolidated Statements of Financial Condition.

Note 9. Goodwill

Goodwill was as follows:
(In thousands)
At March 31, 2020
 
At December 31, 2019
Goodwill related to consumer banking segment
$
771,555

 
$
764,389

Goodwill related to commercial banking segment
541,491

 
535,489

Goodwill, net
$
1,313,046

 
$
1,299,878


 
The Corporation recorded goodwill in the amount of $1.2 billion related to the merger with Legacy TCF completed on August 1, 2019. Goodwill was allocated to the appropriate reporting unit based on the relative fair value of assets acquired and deposits held by the reporting unit. This methodology allocates goodwill in proportion to the assets held by each reporting unit as well as incorporating the value of the funding source provided by the in place deposits. The reporting units aggregate between the Consumer Banking and Commercial Banking segments. See "Note 2. Merger" for further information. There was no impairment of goodwill for the three months ended March 31, 2020 and 2019.



27




Note 10. Loan Servicing Rights

Information regarding LSRs was as follows:
(In thousands)
At or For the Three Months Ended March 31, 2020
Balance, beginning of period
$
56,313

New servicing assets created
2,451

Impairment (charge) recovery
(8,236
)
Amortization
(3,245
)
Balance, end of period
$
47,283

Valuation allowance, end of period
$
(12,118
)
Loans serviced for others that have servicing rights capitalized, end of period
$
6,444,101



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

Note 11. Investments in Qualified Affordable Housing Projects, Federal Historic Projects and New Market Tax Credits

The Corporation invests in qualified affordable housing projects, federal historic projects, and new market tax credits 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 $5.3 million and $2.5 million for the three months ended March 31, 2020 and 2019, respectively. Amortization expense was offset by tax credits and other benefits of $6.6 million and $3.0 million for the three months ended March 31, 2020 and 2019, respectively. The Corporation's remaining investment in qualified affordable housing projects totaled $203.4 million and $195.8 million at March 31, 2020 and December 31, 2019, respectively.

Under the equity method, the Corporation's share of the earnings or losses is included in other noninterest expense. The Corporation's remaining investment in the federal historic projects, and Ohio historic preservation tax credits totaled $46.0 million and $43.6 million at March 31, 2020 and December 31, 2019, respectively. 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, federal historic projects and new market tax credits are included in other liabilities. The Corporation's remaining unfunded equity contributions totaled $143.8 million and $131.3 million at March 31, 2020 and December 31, 2019, respectively.

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

Investments in qualified affordable housing projects, federal historic projects and new market tax credits 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.



28




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, 2020
 
At December 31, 2019
(Dollars in thousands)
Amount
 
Weighted-average Rate
 
Amount
 
Weighted-average Rate
FHLB advances
$
3,200,000

 
0.61
%
 
$
2,450,000

 
1.85
%
Collateralized Deposits
202,535

 
0.64

 
219,145

 
0.64

Line-of-Credit - TCF Financial Corporation
80,000

 
2.64

 

 

 Total short-term borrowings
$
3,482,535

 
0.66

 
$
2,669,145

 
1.75



On March 9, 2020, TCF Financial amended its $50.0 million unsecured 364-day revolving credit facility with an unaffiliated bank to expand borrowing capacity to $150.0 million, which is available to be used, as needed, to fund growth, common stock repurchases or other general corporate purposes. As of March 31, 2020, $80.0 million was outstanding on the revolving credit facility. The revolving credit facility contains covenants related to various capital adequacy levels, asset quality and profitability ratios that must be maintained, and certain restrictions on levels of indebtedness. TCF Financial was in compliance with all covenants at March 31, 2020.

Long-term borrowings were as follows:
(In thousands)
At March 31, 2020
 
At December 31, 2019
FHLB advances
$
2,071,480

 
$
1,822,058

Subordinated debt obligations
437,504

 
428,470

Discounted lease rentals
88,593

 
100,882

Finance lease obligation
3,017

 
3,038

Total long-term borrowings
$
2,600,594

 
$
2,354,448



On May 1, 2020, TCF Bank priced an offering of $150.0 million of fixed-to-floating rate subordinated notes (the “2030 Notes”), which closed on May 6, 2020 at par. The 2030 Notes, due May 6, 2030, bear an initial interest rate of 5.50% per annum, payable semi-annually in arrears on May 6 and November 6, commencing on November 6, 2020. The 2030 Notes are redeemable at TCF Bank's option beginning on May 6, 2025. Effective May 6, 2025, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR rate plus 509 basis points, payable quarterly in arrears on February 6, May 6, August 6 and November 6, commencing on May 6, 2025. TCF Bank incurred issuance costs of approximately $1.6 million that are amortized as interest expense over the full term of the 2030 Notes using the effective interest method.

At March 31, 2020, TCF Bank had pledged loans secured by consumer and commercial real estate with an aggregate carrying value of $11.3 billion to provide borrowing capacity from the FHLB. At March 31, 2020, $1.8 billion of the FHLB advances outstanding were prepayable at the Corporation's option.

At March 31, 2020, TCF Bank had pledged loans and leases with an aggregate carrying value of $4.0 billion to provide borrowing capacity from the Federal Reserve Bank discount window. No borrowings were sourced from this facility at March 31, 2020.


29




The contractual maturities of long-term borrowings at March 31, 2020 were as follows:
(In thousands)
 
Remainder of 2020
$
62,726

2021
1,818,472

2022
142,766

2023
23,658

2024
10,424

Thereafter
542,548

Total long-term borrowings
$
2,600,594



Note 13Accumulated 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,
 
2020
 
2019
(In thousands)
Before Tax
 
Tax Effect
 
Net of Tax
 
Before Tax
 
Tax Effect
 
Net of Tax
Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips:
 

 
 

 
 

 
 

 
 

 
 

Net unrealized gains (losses) arising during the period
$
150,744

 
$
(35,607
)
 
$
115,137

 
$
48,628

 
$
(11,836
)
 
$
36,792

Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
 
 
 
 
 
 
 
 
 
 
 
Total interest income
754

 
(177
)
 
577

 
1,370

 
(333
)
 
1,037

Net gains (losses) on investment securities

 

 

 
(447
)
 
109

 
(338
)
Other noninterest expense
173

 
(40
)
 
133

 
(162
)
 
39

 
(123
)
Amounts reclassified from accumulated other comprehensive income (loss)
927

 
(217
)
 
710

 
761

 
(185
)
 
576

Net unrealized gains (losses) on available-for-sale investment securities and interest-only strips
151,671

 
(35,824
)
 
115,847

 
49,389

 
(12,021
)
 
37,368

Recognized postretirement prior service cost:
 

 
 

 
 

 
 

 
 

 
 

Reclassification of amortization of prior service cost to other noninterest expense
(12
)
 
3

 
(9
)
 
(12
)
 
4

 
(8
)
Foreign currency translation adjustment(1)
(14,426
)
 

 
(14,426
)
 
3,567

 

 
3,567

Net unrealized gains (losses) on net investment hedges
13,695

 
(3,214
)
 
$
10,481

 
(3,050
)
 
742

 
(2,308
)
Total other comprehensive income (loss)
$
150,928

 
$
(39,035
)
 
$
111,893

 
$
49,894

 
$
(11,275
)
 
$
38,619

(1)
Foreign investments are deemed to be permanent in nature and, therefore, TCF does not provide for taxes on foreign currency translation adjustments.



30




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, 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

At or For the Three Months Ended March 31, 2019
 

 
 

 
 

 
 

 
 

Balance, beginning of period
$
(28,022
)
 
$
14,986

 
$
(20,211
)
 
$
109

 
$
(33,138
)
Other comprehensive income (loss)
36,792

 
(2,308
)
 
3,567

 

 
38,051

Amounts reclassified from accumulated other comprehensive income (loss)
576

 

 

 
(8
)
 
568

Net other comprehensive income (loss)
37,368

 
(2,308
)
 
3,567

 
(8
)
 
38,619

Balance, end of period
$
9,346

 
$
12,678

 
$
(16,644
)
 
$
101

 
$
5,481



Note 14Regulatory 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 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 $121.4 million at March 31, 2020, without prior approval of the Office of the Comptroller of the Currency ("OCC"). The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. TCF Bank's ability to make capital distributions in the future may require regulatory approval and may be restricted by its federal banking regulators. TCF Bank's ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. In the future, these capital adequacy standards may be higher than existing minimum regulatory capital requirements.

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

Effective January 1, 2020, the Corporation adopted CECL. In response to the COVID-19 pandemic, the regulatory agencies published an interim final rule on March 31, 2020 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 March 31, 2020 interim final rule.



31




Regulatory capital information for TCF and TCF Bank was as follows:
 
TCF
 
TCF Bank
 
At March 31,
 
At December 31,
 
At March 31,
 
At December 31,
Well-capitalized Standard
 
Minimum Capital Requirement(1)
(Dollars in thousands)
2020
 
2019
 
2020
 
2019
 
Regulatory Capital:
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital
$
4,026,304

 
$
4,050,826

 
$
4,035,278

 
$
4,039,191

 
 
 
Tier 1 capital
4,225,755

 
4,236,648

 
4,065,427

 
4,059,417

 
 
 
Total capital
4,744,899

 
4,681,630

 
4,565,533

 
4,524,051

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio
10.44
%
 
10.99
%
 
10.48
%
 
10.97
%
6.50
%
 
4.50
%
Tier 1 risk-based capital ratio
10.96

 
11.49

 
10.56

 
11.03

8.00

 
6.00

Total risk-based capital ratio
12.31

 
12.70

 
11.86

 
12.29

10.00

 
8.00

Tier 1 leverage ratio
9.27

 
9.49

 
8.93

 
9.10

5.00

 
4.00

(1)
Excludes capital conservation buffer of 2.5% at both March 31, 2020 and December 31, 2019.

Note 15Derivative 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, 2020
 
 
 
Fair Value
(In thousands)
Notional Amount(1)
 
Derivative Assets
 
Derivative Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
Interest rate contract
$
150,000

 
$

 
$
3

Forward foreign exchange contracts
167,488

 
5,938

 

Total derivatives designated as hedging instruments


 
$
5,938

 
$
3

Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts
$
5,875,131

 
$
283,410

 
$
15,967

Risk participation agreements
398,579

 
22

 
118

Forward foreign exchange contracts
239,076

 
3,250

 
2,200

Interest rate lock commitments
452,544

 
13,134

 
4

Forward loan sales commitments
539,741

 
26

 
8,819

Power Equity CDs
27,726

 
509

 
509

Swap agreement
12,652

 

 
286

Total derivatives not designated as hedging instruments


 
$
300,351

 
$
27,903

Total derivatives before netting


 
306,289

 
27,906

Netting(2)
 
 
(11,433
)
 
(4,731
)
Total derivatives, net
 
 
$
294,856

 
$
23,175

(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.



32




 
At December 31, 2019
 
 
 
Fair Value
(In thousands)
Notional Amount(1)
 
Derivative Assets
 
Derivative Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
Interest rate contract
$
150,000

 
$

 
$
168

Forward foreign exchange contracts
177,593

 

 
3,251

Total derivatives designated as hedging instruments


 
$

 
$
3,419

Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts
$
5,095,969

 
$
102,893

 
$
5,872

Risk participation agreements
316,353

 
202

 
354

Forward foreign exchange contracts
262,656

 

 
3,268

Interest rate lock commitments
158,111

 
2,772

 
20

Forward loan sales commitments
174,013

 
41

 
289

Power Equity CD
29,009

 
734

 
734

Swap agreement
12,652

 

 
356

Total derivatives not designated as hedging instruments


 
$
106,642

 
$
10,893

Total derivatives before netting


 
$
106,642

 
$
14,312

Netting(2)
 
 
(540
)
 
(5,109
)
Total derivatives, net
 
 
$
106,102

 
$
9,203

(1)
Notional or contract amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the Consolidated Statements of Financial Condition.
(2)
Includes netting of derivative asset and liability balances and related cash collateral, where counterparty netting agreements are in place.

Derivative instruments may be subject to master netting arrangements and collateral arrangements and qualify for offset in the Consolidated Statements of Financial Condition. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Derivative instruments subject to master netting arrangements and collateral arrangements are recognized on a net basis in the Consolidated Statements of Financial Condition. The gross amounts recognized, gross amounts offset and net amount presented of derivative instruments were as follows:
 
At March 31, 2020
(In thousands)
Gross Amounts Recognized
 
Gross Amounts
 Offset(1)
 
Net Amount Presented
Derivative assets
 
 
 
 
 
Interest rate contracts
$
283,410

 
$
(2,215
)
 
$
281,195

Risk participation agreements
22

 

 
22

Forward foreign exchange contracts
9,188

 
(9,188
)
 

Interest rate lock commitments
13,134

 
(4
)
 
13,130

Forward loan sales commitments
26

 
(26
)
 

Power Equity CDs
509

 

 
509

Total derivative assets
$
306,289

 
$
(11,433
)
 
$
294,856

Derivative liabilities
 
 
 
 
 
Interest rate contracts
$
15,970

 
$
(2,215
)
 
$
13,755

Risk participation agreements
118

 

 
118

Forward foreign exchange contracts
2,200

 
(2,200
)
 

Interest rate lock commitments
4

 
(4
)
 

Forward loan sales commitments
8,819

 
(26
)
 
8,793

Power Equity CDs
509

 

 
509

Swap agreement
286

 
(286
)
 

Total derivative liabilities
$
27,906

 
$
(4,731
)
 
$
23,175

(1)
Includes the amounts with counterparties subject to enforceable master netting arrangements that have been offset in the Consolidated Statements of Financial Condition.



33




 
At December 31, 2019
(In thousands)
Gross Amounts Recognized
 
Gross Amounts
Offset(1)
 
Net Amount Presented
Derivative assets
 
 
 
 
 
Interest rate contracts
$
102,893

 
$
(492
)
 
$
102,401

Risk participation agreements
202

 

 
202

Forward foreign exchange contracts

 

 

Interest rate lock commitments
2,772

 
(7
)
 
2,765

Forward loan sales commitments
41

 
(41
)
 

Power Equity CDs
734

 

 
734

Total derivative assets
$
106,642

 
$
(540
)
 
$
106,102

Derivative liabilities
 
 
 
 
 
Interest rate contracts
$
6,040

 
$
(491
)
 
$
5,549

Risk participation agreements
354

 

 
354

Forward foreign exchange contracts
6,519

 
(4,214
)
 
2,305

Interest rate lock commitments
20

 
(7
)
 
13

Forward loan sales commitments
289

 
(41
)
 
248

Power Equity CD
734

 

 
734

Swap agreement
356

 
(356
)
 

Total derivative liabilities
$
14,312

 
$
(5,109
)
 
$
9,203


(1)
Includes the amounts with counterparties subject to enforceable master netting arrangements that have been offset in the Consolidated Statements of Financial Condition.

Derivatives Designated as Hedging Instruments

Interest rate contract The carrying amount of the hedged subordinated debt, including the cumulative basis adjustment related to the application of fair value hedge accounting, is recorded in long-term borrowings on the Consolidated Statements of Financial Condition and was as follows:
 
Carrying Amount
 of the Hedged Liability
 
Cumulative Amount of
Fair Value Hedging Adjustments
Included in the Carrying Amount
of the Hedged Liability
(In thousands)
At March 31, 2020
 
At December 31, 2019
 
At March 31, 2020
 
At December 31, 2019
Subordinated bank note - 2025
$
160,340

 
$
151,454

 
$
11,602

 
$
2,773



The following table summarizes the effect of fair value hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2020 and 2019.
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Statement of income line where the gain (loss) on the fair value hedge was recorded:
 
 
 
Interest expense on borrowings
$
26,492

 
$
14,857

Gain (loss) on interest rate contract (fair value hedge)
 
 
 
Hedged item
$
(8,830
)
 
$
(2,610
)
Derivative designated as a hedging instrument
8,936

 
2,562

Gain (loss) on interest rate contract recognized in interest expense on borrowings
$
106

 
$
(48
)




34




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)
2020
 
2019
Forward foreign exchange contracts
$
13,695

 
$
(3,050
)


Derivatives Not Designated as Hedging Instruments Certain other interest rate contracts, forward foreign exchange contracts, interest rate lock commitments, Power Equity CDs 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)
2020
 
2019
Interest rate contracts
Other noninterest income
$
1,662

 
$
(487
)
Risk participation agreements
Other noninterest expense
4,326

 
(321
)
Forward foreign exchange contracts
Other noninterest expense
18,713

 
(4,779
)
Interest rate lock commitments
Net gains on sales of loans and leases
10,378

 
493

Forward loan sales commitments
Net gains on sales of loans and leases
(8,545
)
 

Swap agreement
Other noninterest income
(1
)
 

Net gain (loss) recognized
 
$
26,533

 
$
(5,094
)


At March 31, 2020 and December 31, 2019, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $32.0 million and $23.1 million, respectively. In the event the Corporation is rated less than BB- by Standard and Poor's, the contracts could be terminated or the Corporation may be required to provide approximately $640 thousand and $462 thousand in additional collateral at March 31, 2020 and December 31, 2019, respectively. There were no forward foreign exchange contracts containing credit risk-related features in a liability position at both March 31, 2020 and December 31, 2019.

At March 31, 2020, the Corporation had posted $88.9 million, $1.3 million and $1.7 million of cash collateral related to its interest rate contracts, swap agreements and forward foreign exchange contracts, respectively, and received $10.4 million of cash collateral related to its forward foreign exchange contracts.

Note 16Fair 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 the securitization receivable. These non-recurring fair value adjustments typically involve application of lower of cost or fair value accounting or write-downs of individual assets.
 


35




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 inputs. 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% (or weighted average) and prepayment rates of 4% (or weighted average).

Derivative Instruments:

Interest Rate Contracts: The Corporation executes interest rate contracts as described in Note 15. 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 as Level 2.



36




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 derivate instruments.

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

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

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

The balances of assets and liabilities measured at fair value on a recurring basis were as follows:
 
March 31, 2020
(In thousands)
Level 1
Level 2
Level 3
Total
Assets
 
 
 
 
Investment securities available-for-sale
$

$
7,024,821

$
403

$
7,025,224

Loans held-for-sale

206,366


206,366

Interest-only strips


10,951

10,951

Derivative assets:(1)
 
 
 
 
Interest rate contracts

283,410


283,410

Risk participation agreements

22


22

Forward foreign exchange contracts

9,188


9,188

Interest rate lock commitments

13,134


13,134

   Forward loan sales commitments

26


26

Power Equity CDs

509


509

Total derivative assets

306,289


306,289

Assets held in trust for deferred compensation plans
42,493



42,493

Total assets at fair value
$
42,493

$
7,537,476

$
11,354

$
7,591,323

Liabilities
 
 
 
 
Derivative liabilities:(1)
 
 
 
 
Interest rate contracts
$

$
15,970

$

$
15,970

Risk participation agreements

118


118

Forward foreign exchange contracts

2,200


2,200

Interest rate lock commitments

4


4

   Forward loan sales commitments

8,819


8,819

Power Equity CDs

509


509

Swap agreement


286

286

Total derivative liabilities

27,620

286

27,906

Liabilities held in trust for deferred compensation plans
42,493



42,493

Total liabilities at fair value
$
42,493

$
27,620

$
286

$
70,399

(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.




37




 
December 31, 2019
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Investment securities available-for-sale
$

 
$
6,719,568

 
$
433

 
$
6,720,001

Loans held-for-sale

 
91,202

 

 
91,202

Interest-only strips

 

 
12,813

 
12,813

Derivative assets:(1)
 
 
 
 
 
 
 
Interest rate contracts

 
102,893

 

 
102,893

Risk participation agreements

 
202

 

 
202

Interest rate lock commitments

 
2,772

 

 
2,772

Forward loan sales commitments

 
41

 

 
41

Power Equity CDs

 
734

 

 
734

Total derivative assets

 
106,642

 

 
106,642

Forward loan sales commitments, non-derivative

 
46

 

 
46

Assets held in trust for deferred compensation plans
43,743

 

 

 
43,743

Total assets at fair value
$
43,743

 
$
6,917,458

 
$
13,246

 
$
6,974,447

Liabilities
 
 
 
 
 
 
 
Derivative liabilities:(1)
 
 
 
 
 
 
 
Interest rate contracts
$

 
$
6,040

 
$

 
$
6,040

Risk participation agreements

 
354

 

 
354

Forward foreign exchange contracts

 
6,519

 

 
6,519

Interest rate lock commitments

 
20

 

 
20

Forward loan sales commitments

 
289

 

 
289

Power Equity CDs

 
734

 

 
734

Swap agreement

 

 
356

 
356

Total derivative liabilities

 
13,956

 
356

 
14,312

Liabilities held in trust for deferred compensation plans
43,743

 

 

 
43,743

Total liabilities at fair value
$
43,743

 
$
13,956

 
$
356

 
$
58,055

(1)
As permitted under GAAP, the Corporation has elected to net derivative assets and derivative liabilities when a legally enforceable master netting agreement exists as well as the related cash collateral received and paid. For purposes of this table, the derivative assets and derivative liabilities are presented gross of this netting adjustment.

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



38




The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
(In thousands)
Investment securities available-for-sale
 
Loans
held-for-sale
 
Interest-only strips
 
Interest rate lock commitments
 
Swap agreement
 
Forward loan sales commitments
At or For the Three Months Ended 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
)
 
$

 
$

 
$

At or For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Asset (liability) balance, beginning of period
$
4

 
$
18,070

 
$
16,835

 
$
624

 
$
(583
)
 
$
(26
)
Total net gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
Net income

 
(166
)
 
712

 
493

 

 
(92
)
Other comprehensive income (loss)

 

 
286

 

 

 

Sales

 
(73,438
)
 

 

 

 

Originations

 
65,400

 
844

 

 

 

Principal paydowns / settlements

 
(3
)
 
(2,514
)
 

 
73

 

Asset (liability) balance, end of period
$
4

 
$
9,863

 
$
16,163

 
$
1,117

 
$
(510
)
 
$
(118
)
Unrealized gains (losses) included in other comprehensive income for assets held at the end of the period
$

 
$

 
$
286

 
$

 
$

 
$



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

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

Loans and Leases: Loans and leases for which repayment is expected to be provided solely by the value of the underlying collateral, categorized as Level 3 and recorded at fair value on a non-recurring basis, are valued based on the fair value of that collateral less estimated selling costs. The fair value of the collateral is determined based on internal estimates and/or assessments provided by third-party appraisers and the valuation relies on discount rates ranging from 10% to 30%.

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 14%. 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 discount rates ranging from 8% to 30%. 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, are categorized as Level 2 or Level 3 depending on the underlying asset type, is 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.



39




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, 2020 and December 31, 2019.
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
At March 31, 2020
 
 
 
 
 
 
 
Loans and leases
$

 
$

 
$
204,489

 
$
204,489

Loan servicing rights

 

 
47,283

 
47,283

Other real estate owned

 

 
15,208

 
15,208

Repossessed and returned assets

 
8,568

 

 
8,568

Total non-recurring fair value measurements
$

 
$
8,568

 
$
266,980

 
$
275,548

At December 31, 2019
 
 
 
 
 
 
 
Loans and leases
$

 
$

 
$
141,199

 
$
141,199

Loan servicing rights

 

 
56,298

 
56,298

Other real estate owned

 

 
17,577

 
17,577

Repossessed and returned assets

 
6,968

 

 
6,968

Total non-recurring fair value measurements
$

 
$
6,968

 
$
215,074

 
$
222,042



Fair Value Option

The Corporation has elected the fair value option for residential 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, 2020
 
December 31, 2019
Fair value carrying amount
$
206,366

 
$
91,202

Aggregate unpaid principal amount
196,253

 
88,192

Fair value carrying amount less aggregate unpaid principal
$
10,113

 
$
3,010



Differences between the fair value carrying amount and the aggregate unpaid principal balance include changes in fair value recorded at and subsequent to funding and gains and losses on the related loan commitment prior to funding. No loans recorded under the fair value option were delinquent or on nonaccrual status at March 31, 2020 and December 31, 2019. The net gain from initial measurement of the loans held-for-sale, any subsequent changes in fair value while the loans are outstanding and any actual adjustment to the gains realized upon sales of the loans totaled $15.2 million for the three months ended March 31, 2020 and $2.2 million for the same period in 2019, and are included in net gains on sales of loans and leases. These amounts exclude the impacts from the interest rate lock commitments and forward loan sales commitments which are also included in net gains on sales of loans and leases.

Disclosures about Fair Value of Financial Instruments

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



40




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 excluding financial instruments recorded at fair value on a recurring basis. 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 branches 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, 2020
 
Carrying
 
Estimated Fair Value
(In thousands)
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial instrument assets
 

 
 

 
 

 
 

 
 

FHLB and FRB stocks
$
484,461

 
$

 
$
484,461

 
$

 
$
484,461

Investment securities held-to-maturity
135,619

 

 
142,302

 
3,672

 
145,974

Loans and leases held-for-sale
80,811

 

 
64,895

 
18,740

 
83,635

Net loans(1)
32,833,843

 

 

 
33,154,484

 
33,154,484

Securitization receivable(2)
19,753

 

 

 
19,577

 
19,577

Deferred fees on commitments to extend credit(2)
20,078

 

 
20,078

 

 
20,078

Total financial instrument assets
$
33,574,565

 
$

 
$
711,736

 
$
33,196,473

 
$
33,908,209

Financial instrument liabilities
 

 
 

 
 

 
 

 
 
Certificates of deposits
$
7,463,192

 
$

 
$
7,494,934

 
$

 
$
7,494,934

Long-term borrowings
2,600,594

 

 
2,583,975

 

 
2,583,975

Deferred fees on standby letters of credit(3)
43

 

 
43

 

 
43

Total financial instrument liabilities
$
10,063,829

 
$

 
$
10,078,952

 
$

 
$
10,078,952


 
At December 31, 2019
 
Carrying
 
Estimated Fair Value
(In thousands)
  Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial instrument assets
 

 
 

 
 

 
 

 
 

FHLB and FRB stocks
$
442,440

 
$

 
$
442,440

 
$

 
$
442,440

Investment securities held-to-maturity
139,445

 

 
141,168

 
3,676

 
144,844

Loans held-for-sale
108,584

 

 
110,252

 
2,273

 
112,525

Net loans(1)
31,699,285

 

 

 
31,804,513

 
31,804,513

Securitization receivable(2)
19,689

 

 

 
19,466

 
19,466

Deferred fees on commitments to extend credit(2)
19,300

 

 
19,300

 

 
19,300

Total financial instrument assets
$
32,428,743

 
$

 
$
713,160

 
$
31,829,928

 
$
32,543,088

Financial instrument liabilities
 

 
 
 
 

 
 

 
 

Certificates of deposits
$
7,455,556

 
$

 
$
7,460,577

 
$

 
$
7,460,577

Long-term borrowings
2,354,448

 

 
2,368,469

 

 
2,368,469

Deferred fees on standby letters of credit(3)
56

 

 
56

 

 
56

Total financial instrument liabilities
$
9,810,060

 
$

 
$
9,829,102

 
$

 
$
9,829,102


(1)
Expected credit losses are included in the estimated fair values.
(2)
Carrying amounts are included in other assets.
(3)
Carrying amounts are included in other liabilities.


Note 17. Revenue from Contracts with Customers

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



41




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

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

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

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

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

The following tables present total noninterest income segregated between contracts with customers within the scope of ASC 606 and those within the scope of other GAAP topics.
 
Three Months Ended 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
$
30,218

 
$
1,394

 
$

 
$
2,985

 
$
34,597

Wealth management revenue
239

 

 

 
5,912

 
6,151

Card and ATM revenue
19,181

 
26

 

 
2,478

 
21,685

Other noninterest income
3,821

 
1,964

 
2,497

 
66,248

 
74,530

Total
$
53,459

 
$
3,384

 
$
2,497

 
$
77,623

 
$
136,963

 
Three Months Ended March 31, 2019
 
Within the scope of ASC 606
 
Out of scope of ASC 606
 
Total
(In thousands)
Consumer Banking
 
Commercial Banking
 
Enterprise Services
 
Noninterest income
 
 
 
 
 
 
 
 
 
Fees and service charges on deposit accounts
$
25,193

 
$
1,061

 
$

 
$
24

 
$
26,278

Wealth management revenue

 

 

 

 

Card and ATM revenue
18,630

 
17

 

 
12

 
18,659

Other noninterest income
2,682

 
4,826

 
3,954

 
(4,838
)
 
6,624

Total
$
46,505

 
$
5,904

 
$
3,954

 
$
(4,802
)
 
$
51,561




42




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

Note 18Share-based Compensation

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

Before the Merger, Chemical and Legacy TCF granted share-based awards under their respective share-based compensation plans, including the Chemical Stock Incentive Plan of 2019 (the "Stock Incentive Plan of 2019”") and the TCF Financial 2015 Omnibus Incentive Plan (the "Legacy TCF Omnibus Incentive Plan"). At March 31, 2020, there were 2,271,926 shares reserved for issuance under the Legacy TCF Omnibus Incentive Plan and there were 1,791,840 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 was $4.7 million for the three months ended March 31, 2020 and $2.3 million for the same period in 2019. The excess tax benefit realized from share-based compensation transactions during the three months ended March 31, 2020 was a benefit of $677 thousand and $704 thousand for the same period in 2019.

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 employees who previously were employees of Legacy TCF. At March 31, 2020, there were no 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 performance target level and/or satisfaction of a service condition, as applicable, the RSUs are converted into shares of TCF Financial's common stock on a one-to-one basis. Compensation expense related to RSUs is recognized over the expected requisite performance or service period, as applicable.
 
A summary of the activity for RSUs at and for the three months ended March 31, 2020 is presented below:
 
Number of Units
 
Weighted-average Grant Date Fair Value Per Unit
Outstanding at December 31, 2019
1,511,820

 
$
44.49

Granted
16,980

 
39.67

Forfeited/canceled
(3,896
)
 
49.84

Vested
(215,069
)
 
44.82

Outstanding at March 31, 2020
1,309,835

 
$
44.36



Unrecognized compensation expense related to RSUs totaled $36.9 million at March 31, 2020 and is expected to be recognized over the remaining weighted-average period of 2.1 years.



43




Restricted Stock Awards

The Corporation's restricted stock award transactions were as follows:
 
Number of Awards
 
Weighted-Average Grant Date Fair Value Per Award
Outstanding at December 31, 2019
888,305

 
$
40.67

Forfeited/canceled
(402
)
 
39.58

Vested
(104,690
)
 
43.48

Outstanding at March 31, 2020
783,213

 
$
40.07



At March 31, 2020, there were no shares of performance-based restricted stock awards outstanding. Unrecognized stock compensation expense for restricted stock awards was $15.3 million at March 31, 2020 with a weighted-average remaining amortization period of 2.3 years.

Stock Options

A summary of activity for the Corporation's stock options at and for the three months ended March 31, 2020 is presented below:
 
Non-Vested Stock Options Outstanding
 
Stock Options Outstanding
 
Number of Options
 
Weighted-average Exercise Price
 
Number of Options
 
Weighted-average
Exercise Price
Outstanding at December 31, 2019
120,809

 
$
39.63

 
495,165

 
$
29.48

Exercised

 

 
(19,274
)
 
18.18

Forfeited/canceled
(3,173
)
 
39.00

 

 

Expired

 

 
(34,323
)
 
34.38

Vested
(55,568
)
 
38.25

 
55,568

 
38.25

Outstanding at March 31, 2020
62,068

 
$
40.89

 
497,136

 
$
30.56

Exercisable/vested at March 31, 2020
 
 
 
 
497,136

 
$
30.56



The weighted-average remaining contractual term was 3.9 years for all outstanding stock options and 3.6 years for exercisable stock options at March 31, 2020.

Note 19Retirement Plans
 
The Corporation's retirement plans include qualified defined benefit pension plans, nonqualified postretirement benefit plans, 401(k) savings plans and nonqualified supplemental retirement plans. These plans are discussed in further detail in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019.

Qualified Defined Benefit Pension Plans

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

The Board of Directors of Legacy TCF approved the termination of the Legacy TCF Pension Plan effective November 1, 2019. The Legacy TCF Pension Plan was fully funded as of March 31, 2020. The weighted-average interest crediting rate was 2.05% as of March 31, 2020. TCF does not consolidate the assets and liabilities associated with the Legacy TCF Pension Plan.



44




The termination of the Chemical Pension Plan was approved effective August 31, 2019. The discount rate was adjusted to 3.48% based on the remeasurement of the Chemical Pension Plan required due to the Merger and the termination. At the time of the Merger, as a result of the termination, the Corporation recognized a prepaid asset representing the funded status of the Chemical Pension Plan, net of estimated settlement costs, and the balance previously recorded in accumulated other comprehensive income was eliminated. The purchase accounting adjustment, as a result of the Merger, was reported in goodwill. The Chemical Pension Plan was fully funded as of March 31, 2020.

Nonqualified Postretirement Benefit Plans

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

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

401(k) Savings Plans

The TCF 401K Plan (the "TCF 401K"), a qualified postretirement benefit and employee stock ownership plan, and the Chemical Financial Corporation 401K Savings Plan (the "Chemical 401K"), a qualified postretirement benefit plan both provide the option to invest in TCF common stock. Effective December 31, 2019, the Chemical 401K merged with and into the TCF 401K. All participants with an account balance remaining in the Chemical 401K were transferred into the TCF 401K on December 31, 2019.

Nonqualified Supplemental Retirement Plans

The TCF 401K Supplemental Plan (the "Legacy TCF SERP") and the Chemical Financial Corporation Deferred Compensation Plan (the "Chemical Deferred Compensation Plan") are both defined as nonqualified supplemental retirement plans. Effective January 1, 2020, the Legacy TCF SERP no longer receives new contributions from the Corporation or participants. The Legacy TCF SERP's assets which included investments in TCF common stock are held in trust and included in equity in the other line item.

Net Periodic Benefit

The net periodic benefit plan (income) cost included in other noninterest expense for defined benefit pension plans and postretirement benefit plans were as follows:
 
Defined Benefit Pension Plans
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Interest cost
$
946

 
$
264

Return on plan assets
(957
)
 
(137
)
Net periodic benefit plan (income) cost
$
(11
)
 
$
127

 
Postretirement Benefit Plans
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Interest cost
$
36

 
$
30

Service cost
1

 

Amortization of prior service cost
(12
)
 
(12
)
Net periodic benefit plan (income) cost
$
25

 
$
18



TCF made no cash contributions to the defined benefit pension plans during the three months ended March 31, 2020 and 2019. TCF contributed $21 thousand and $107 thousand to the Legacy TCF Postretirement Plan during the three months ended March 31, 2020 and 2019, respectively. TCF made no contributions to the Chemical Postretirement Benefit Plan during both the three months ended March 31, 2020 and 2019.



45




The TCF 401K allows participants to make contributions of up to 50% of their covered compensation on a tax-deferred and/or after-tax basis, subject to the annual covered compensation limitation imposed by the Internal Revenue Service ("IRS"). TCF matches the contributions of all participants at a rate of $1 per dollar for employees to a maximum company contribution of 5% of the employee's covered compensation per pay period subject to the annual covered compensation limitation imposed by the IRS. Employee contributions vest immediately and matching contributions made subsequent to January 1, 2020 vest immediately. The Corporation match under the TCF 401K was $6.5 million and $4.3 million for the three months ended March 31, 2020 and 2019, respectively. Dividends on TCF's common shares held in the TCF 401K are reinvested in such fund or, at the election of the participant, may be paid in cash to the participant.

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

Note 20Earnings 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)
2020
 
2019
Basic earnings per common share
 

 
 

Net income attributable to TCF Financial Corporation
$
51,899

 
$
70,494

Preferred stock dividends
2,493

 
2,493

Net income available to common shareholders
49,406

 
68,001

Less: Earnings allocated to participating securities

 
13

Earnings allocated to common stock
$
49,406

 
$
67,988

Weighted-average common shares outstanding used in basic earnings per common share calculation
151,902,357

 
82,245,577

Basic earnings per common share
$
0.33

 
$
0.83

Diluted earnings per common share
 

 
 

Earnings allocated to common stock
$
49,406

 
$
67,988

Weighted-average common shares outstanding used in basic earnings per common share calculation
151,902,357

 
82,245,577

Net dilutive effect of:
 

 
 

Non-participating restricted stock
83,580

 

Stock options
128,080

 

Weighted-average common shares outstanding used in diluted earnings per common share calculation
152,114,017

 
82,245,577

Diluted earnings per common share
$
0.32

 
$
0.83

Anti-dilutive shares outstanding not included in the computation of diluted earnings per common share
 
 
 
Non-participating restricted stock
1,173,331

 
956,589

Stock options
90,144

 





46




Note 21. Other Noninterest Expense

Other noninterest expense was as follows:
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Outside processing
$
13,913

 
$
5,474

Loan and lease expense
7,783

 
3,289

Professional fees
6,569

 
5,528

Advertising and marketing
8,377

 
6,855

FDIC insurance
6,559

 
2,918

Card processing and issuance costs
8,690

 
4,508

Other
36,855

 
25,507

Total other noninterest expense
$
88,746

 
$
54,079



Note 22. Reportable Segments
 
The Corporation's reportable segments are Consumer Banking, Commercial Banking and Enterprise Services. Consumer Banking is comprised of all of the Corporation's consumer-facing businesses and includes retail banking, consumer lending, wealth management and small business banking. Commercial Banking, previously named Wholesale Banking, is comprised of commercial and industrial and commercial real estate banking and lease financing. Enterprise Services is comprised of (i) corporate treasury, which includes the Corporation's investment and borrowing portfolios and management of capital, debt and market risks, (ii) corporate functions, such as information technology, risk and credit management, bank operations, finance, investor relations, corporate development, internal audit, legal and human capital management that provide services to the operating segments, (iii) the Holding Company and (iv) eliminations.

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

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



47




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, 2020
 
 
 
 
 
 
 
Net interest income (expense)
$
193,832

 
$
185,986


$
21,663

 
$
401,481

Provision for credit losses
44,369

 
52,574

 

 
96,943

Net interest income (expense) 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 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

At or For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
Net interest income (expense)
$
140,702

 
$
96,685

 
$
17,042

 
$
254,429

Provision (benefit) for credit losses
7,226

 
2,896

 

 
10,122

Net interest income (expense) after provision for credit losses
133,476

 
93,789

 
17,042

 
244,307

Noninterest income
60,503

 
42,499

 
502

 
103,504

Noninterest expense
156,521

 
83,413

 
13,141

 
253,075

Income tax expense (benefit)
8,741

 
11,759

 
787

 
21,287

Income (loss) after income tax expense (benefit)
28,717

 
41,116

 
3,616

 
73,449

Income attributable to non-controlling interest

 
2,955

 

 
2,955

Preferred stock dividends

 

 
2,493

 
2,493

Net income (loss) available to common shareholders
28,717

 
38,161

 
1,123

 
68,001

Total assets
$
8,036,742

 
$
12,735,702

 
$
3,646,271

 
$
24,418,715



Note 23. Commitments, Contingent Liabilities and Guarantees

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

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

Financial instruments with off-balance sheet risk were as follows:
(In thousands)
At March 31, 2020
 
At December 31, 2019
Commitments to extend credit:
 
 
 
Commercial
$
5,140,026

 
$
5,743,072

Consumer
2,245,645

 
2,305,096

Total commitments to extend credit
7,385,671

 
8,048,168

Standby letters of credit and guarantees on industrial revenue bonds
126,384

 
129,192

Total
$
7,512,055

 
$
8,177,360



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



48




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 those historical originated and sold loans 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 $5.1 million and $6.2 million at March 31, 2020 and December 31, 2019, respectively. The maximum potential amount of undiscounted future payments that the Corporation could be required to make in the event of nonperformance by the borrower totaled $5.0 million and $6.0 million at March 31, 2020 and December 31, 2019, respectively. In the event of nonperformance, the Corporation has rights to the underlying collateral securing the loans. At both March 31, 2020 and December 31, 2019, the Corporation had recorded a liability of $0.1 million, in connection with the recourse agreements, in other liabilities.

In addition, the Corporation acquired, through the Merger, certain Small Business Administration ("SBA") guaranteed loans in which the guaranteed portion had been sold to a third party investor. In the event these loans default and the SBA guaranty is no longer intact (i.e. an issue 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 $15.3 million and $16.7 million at March 31, 2020 and December 31, 2019, respectively. In the event of default, the Corporation has rights to the underlying collateral securing the loans. At both March 31, 2020 and December 31, 2019, the Corporation had recorded a liability of $0.9 million, in other liabilities.

Representations, Warranties and Contractual Liabilities In connection with the Corporation's residential mortgage loan sales, and the historical sales of merged or acquired entities, the Corporation makes certain representations and warranties that the loans meet certain criteria, such as collateral type, underwriting standards and the manner in which the loans will be serviced. The Corporation may be required to repurchase individual loans and/or indemnify the purchaser against losses if the loan fails to meet established criteria. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower or the failure to obtain valid title. At March 31, 2020 and December 31, 2019 the liability recorded in connection with these representations and warranties was $5.5 million and $5.7 million, respectively, included in other liabilities.

Litigation Contingencies From time to time, the Corporation is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. The Corporation may also be subject to regulatory examinations and enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the Consumer Financial Protection Bureau which may impose sanctions on the Corporation for failures related to regulatory compliance. From time to time borrowers and other customers, and employees and former employees have also brought actions against the Corporation, in some cases claiming substantial damages. The Corporation, like other financial services companies, is 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 the current understanding of the Corporation's 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 the consolidated financial position, operating results or cash flows of the Corporation.




49




Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Information

Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for the Corporation's businesses and their respective markets, such as projections of future performance, targets, guidance, statements of the Corporation's plans and objectives, forecasts of market trends and other matters are forward-looking statements based on the Corporation's assumptions and beliefs. Such statements may be identified by such words or phrases as "will likely result," "are expected to," "will continue," "outlook," "will benefit," "is anticipated," "estimate," "project," "management believes" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.

These statements include, among others, statements related to: our strategic plan to develop customer relationships that will drive core deposit growth and stability, management's belief that our commercial and commercial real estate loan portfolios are generally well-secured, the impact of projected changes in net interest income assuming changes to short-term market interest rates, statements regarding our risk exposure, statements related to integration following our merger, including statements related to the anticipated effects on results of operations and financial condition from expected developments. All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for credit losses; the carrying value of acquired loans and leases, goodwill and loan servicing rights; the fair value of investment securities (including whether there is any credit impairment); and management's assumptions concerning postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on us, specifically, are also inherently uncertain.

These forward-looking statements are subject to certain risks, uncertainties and assumptions ("risk factors") that could cause actual results to differ materially from those expressed or implied in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. Any forward-looking statement speaks only as of the date on which it is made and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events, except as required by law. These factors include the factors discussed in Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading "Risk Factors" or otherwise disclosed in documents filed or furnished by us with or to the SEC after the filing of the Annual Reporting on Form 10-K, the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive: macroeconomic and other challenges and uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, financial markets and consumer and corporate customers and clients, including economic activity, employment levels and market liquidity, as well as the various actions taken in response to the challenges and uncertainties by governments, central banks and others, including TCF; a failure to manage credit risk; cyber-security breaches involving us or third parties, hacking, denial of service, loss or theft of information, or other cyber-attacks that disrupt TCF's business operations or damage its reputation; adverse developments affecting TCF's branches, including supermarket branches; inability to successfully execute on TCF's growth strategy through acquisitions or expanding existing business relationships; adverse effects related to competition from traditional competitors, non-bank providers of financial services and new technologies; failure to keep pace with technological change, including with respect to customer demands or system upgrades; risks related to developing new products, markets or lines of business; risks related to TCF's loan origination and sales activity; lack of access to liquidity or raise capital that isn’t dilutive; adverse changes in monetary, fiscal or tax policies; litigation or government enforcement actions; heightened consumer protection, supervisory or regulatory practices or requirements; deficiencies in TCF's compliance programs or risk mitigation frameworks; dependence on accurate and complete information from customers and counterparties; the failure to attract and retain key employees; ineffective internal controls; soundness of other financial institutions and other counterparty risk, including the risk of default, operational disruptions, or diminished availability of counterparties who


50




satisfy our credit quality requirements; inability to grow deposits, increase earnings and revenue, manage operating expenses, or pay and receive dividends; interruptions, systems failures information technology and telecommunications systems failures of third-party services; deficiencies in TCF's quantitative models; the effect of any negative publicity or reputational damage; technological or operational difficulties; changes in accounting standards or interpretations of existing standards; adverse federal, state or foreign tax assessments; and the effects of man-made and natural disasters, any of which may negatively affect our operations and/or our customers.

This Quarterly Report on Form 10-Q also contains forward-looking statements regarding our outlook or expectations with respect to the Merger with Legacy TCF. Examples of forward-looking statements include, but are not limited to, statements regarding outlook and expectations with respect to the strategic and financial benefits of the merger, including the expected impact of the transaction on TCF's future financial performance (including anticipated accretion to earnings per share, the tangible book value earn-back period and other operating and return metrics), the expected costs to be incurred in connection with the merger, and operational aspects of post-merger integration. Such risks, uncertainties and assumptions, include, among others, the following:

the impact of the COVID-19 pandemic;
the possibility that the anticipated benefits of the merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where TCF does business, or as a result of other unexpected factors or events;
the impact of purchase accounting with respect to the merger, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
diversion of management's attention from ongoing business operations and opportunities;
the operational integration of the merged businesses and operations, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results;
failure to attract new customers and retain existing customers in the manner anticipated;
the challenges of integrating, retaining and hiring key personnel;
the potential impact of the merger on relationships with third parties, including customers, vendors, employees and competitors; and
other factors that may affect future results of TCF including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.

TCF disclaims any obligation to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by law.

Overview

TCF Financial Corporation, formerly known as Chemical Financial Corporation, ("TCF") is a financial holding company, incorporated in Michigan in 1973 and headquartered in Detroit, Michigan.

Through our wholly-owned bank subsidiary, TCF National Bank, a national banking association ("TCF Bank") with its main office in Sioux Falls, South Dakota, we provide 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. As of March 31, 2020, TCF had more than 500 branches primarily located in Michigan, Minnesota, Illinois, Ohio, Colorado and Wisconsin (our "primary banking markets"). We also conduct business across all 50 states and Canada through our specialty lending and leasing businesses.

References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis. TCF Financial Corporation (together with its direct and indirect subsidiaries, are referred to as "we," "us," "our," "TCF" or the "Corporation".



51




Response to COVID-19

TCF has developed a proactive response to COVID-19 to support our team members, customers and communities. In addition to the below, our management has implemented an internal COVID-19 Task Force, is holding daily Executive Leadership Team Calls, weekly Senior Leadership Team Calls, weekly executive calls with all managers and has enhanced portfolio management and credit committee reporting.
 
To support our team members we are:
Providing equipment and resources to allow nearly all of our middle and back office employees to work from home;
providing company-paid time off for team members not able to work for reasons related to COVID-19; and
paying premium pay to employees required to work in the office and banking centers.

To support our customers we are:
Providing relief to small businesses and commercial borrowers by offering loan modifications for impacted customers and participating in the Paycheck Protection Program and Economic Injury Disaster Program,
providing payment deferrals for up to 90 days with no credit bureau impact and no late fees to provide relief to our mortgage and home equity customers;
suspending initiating any new residential property foreclosures from March 23, 2020 to April 30, 2020; and
aiding in the prevention of the spread of COVID-19 through transitioning all branches to drive-up only with lobby services by appointment and have closed in-store only branches that are near drive-thru branches.

To support our communities we have:
Committed $100 thousand in matching incentives toward both the Henry Ford Health System and University of Minnesota emergency funds for COVID-19 response; and
partnered with Wayne County, Michigan to provide $10 million in fast relief through low-interest loans to help small businesses within the county of Wayne.

The COVID-19 pandemic has resulted in historic job losses and decreases in economic activity. While the duration and full extent of job losses and magnitude of economic dislocation are not yet known, it is clear that they may impact the ability of individuals and small businesses to make payments, value of underlying collateral and the ability of guarantors to make payments in the case of default, which may decrease consumer demand for our products and services and reduce our ability to access capital. As a result, we have faced and may continue to face a decrease in demand for certain products, reduced access to our branches by our customers, and disruptions in the operations of our vendors. The pandemic could also result in the recognition of additional credit losses in our loan and lease portfolios and increase our allowance for credit losses as both businesses and consumers are negatively impacted by the economic downturn. The extent of such impact will depend on the outcome of certain developments, including but not limited to, the duration and spread of the outbreak as well as its continuing impact on our customers, vendors, employees and the financial markets all of which are uncertain. See Part II, Item 1A, "Risk Factors - Risks related to the impact of COVID-19" for further discussion.

Merger of Equals

On August 1, 2019 (the "Merger Date"), TCF Financial Corporation, a Delaware corporation ("Legacy TCF"), merged with and into Chemical Financial Corporation, a Michigan corporation("Chemical"), with Chemical surviving the merger (the "Merger") and being renamed TCF Financial Corporation. Immediately following the Merger, Chemical’s wholly owned bank subsidiary, Chemical Bank, a Michigan state-chartered bank, merged with and into TCF Bank, with TCF Bank surviving the merger. Upon completion of the Merger, Chemical was renamed TCF Financial Corporation.



52




The Merger was accounted for as a reverse merger using the acquisition method of accounting, therefore, Legacy TCF was deemed the acquirer for financial reporting purposes, even though Chemical was the legal acquirer. Accordingly, Legacy TCF's historical financial statements are the historical financial statements of the combined company for all periods before the Merger Date. Our results of operations for the first quarter of 2020 and fourth quarter of 2019 include the results of operations of the post-merger combined TCF. Results for the first quarter of 2019 reflect only those of Legacy TCF and do not include the results of operations of Chemical. Accordingly, comparisons of our results for the first quarter of 2020 to the first quarter of 2019 may not be meaningful. The number of shares issued and outstanding, earnings per share, additional paid-in-capital and all references to share quantities of TCF have been retrospectively adjusted to reflect the equivalent number of shares issued in the Merger. See "Note 2. Merger" of the Notes to Consolidated Financial Statements for further information.

Business Overview

Net interest income, the difference between interest income earned on loans and leases, investments securities and other earning assets (interest income) and interest paid on deposits and borrowings (interest expense), represented 74.6% of our total revenue for the three months ended March 31, 2020, compared with 72.1% for the three months ended December 31, 2019 and 71.1% for the three months ended March 31, 2019. Net interest income can change significantly from period to period based on interest rates, customer prepayment patterns and the volume and mix of interest-earning assets, noninterest-bearing deposits and interest-bearing liabilities. We manage the risk of changes in interest rates on our net interest income through TCF's Asset & Liability Committee ("ALCO") and through related interest rate risk monitoring and management policies. See "Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk" for further discussion.

Noninterest income is a significant source of our revenue and an important component of our results of operations. The significant components of noninterest income are leasing revenue, fees and service charges on deposit accounts, card and ATM revenue, net gains on sales of loans and leases and servicing fee revenue. Leasing revenue generates noninterest income primarily from operating and sales-type leases. Providing a wide range of consumer banking services is an integral component of our business philosophy. Primary drivers of fees and service charges include the number of customers we attract, the customers' level of engagement and the frequency with which the customer uses our solutions. We sell loans, primarily secured by consumer real estate, which results in gains on sales, as well as servicing fee income. Primary drivers of gains on sales include our ability to originate loans, identify loan buyers and execute loan sales.

The following portions of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion and Analysis") focus in more detail on the results of operations for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019 and on information about our financial condition, loan and lease portfolio, liquidity, funding resources, capital and other matters. This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes appearing in this report and the Consolidated Financial Statements and related notes and disclosures in our 2019 Annual Report on Form 10-K.

Critical Accounting Estimates

Our Consolidated Financial Statements are prepared in accordance with United States generally accepted accounting principles ("GAAP"), Securities and Exchange Commission ("SEC") rules and interpretive releases and general practices within our industry. Application of these principles requires management to make estimates, assumptions and complex judgments that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. These estimates, assumptions and judgments are based on historical experience and various assumptions that we believe to be reasonable as of the date of the financial statements; accordingly, as this information changes, our Consolidated Financial Statements could reflect different estimates, assumptions and judgments. Actual results could differ significantly from those estimates.

Certain accounting measurements inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We use third-party sources to assist us with developing certain estimates, assumptions and judgments regarding certain amounts reported in our Consolidated Financial Statements and accompanying notes. When using third-party sources, management remains responsible for complying with GAAP. To execute management's responsibilities, we have processes in place to develop an understanding of the third-party methodologies and to design and implement internal controls.



53




We have identified the determination of the allowance for credit losses (loans and leases), accounting for business combinations (including fair value of purchased loans and leases and core deposit intangibles), and the evaluation of goodwill impairment to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider them to be critical accounting estimates and discuss them directly with the Audit Committee of our Board of Directors.

Our significant accounting estimate related to accounting for business combinations is more fully described in the Critical Accounting Estimates section of this Management's Discussion and Analysis of Financial Condition within our audited Consolidated Financial Statements and notes thereto at and for the year ended December 31, 2019. As a result of our adoption of CECL as of January 1, 2020, we have made updates to our allowance for credit losses accounting measurements as detailed below. We have also provided updates regarding the evaluation of goodwill impairment below.

Updates to Critical Accounting Estimates

Allowance for Credit Losses

The ACL represents management's estimate of current credit losses expected to be incurred by the portfolio over the life of each financial asset as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amounts and timing of expected future cash flows, adjustments for forward-looking information, estimates of losses based on measurement date credit risk characteristics and consideration of other qualitative factors, all of which may be susceptible to significant change.

Events that are not within our control, such as changes in economic conditions, could change subsequent to the end of the period covered by this Quarterly Report on Form 10-Q, and could cause the ACL to be overstated or understated. The amount of ACL is affected by net charge-offs, which decrease the ACL; and the provision for credit losses charged to earnings, which increases or decreases the ACL.

The amount of the ACL significantly depends on management's estimates of key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known.

See "Note 3. Summary of Significant Accounting Policies" and "Note 8. Allowance for Credit Losses and Credit Quality"
of the Consolidated Financial Statements for additional disclosure regarding our ACL.

Goodwill

Goodwill represents the excess of the purchase price of our business acquisition and other purchases of bank branches and other businesses over the fair value of the net assets acquired. Goodwill is not amortized, but rather is tested by management annually in the fourth quarter for impairment, or more frequently if triggering events occur and indicate potential impairment, in accordance with ASC Topic 350-20, Goodwill (ASC 350-20). ASC 350-20 allows an entity to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. ASC 350-20 also allows an entity to bypass the qualitative assessment approach and determine if goodwill is impaired utilizing a quantitative assessment approach.

Given the economic deterioration due to the COVID-19 pandemic, during the first quarter of 2020 we evaluated whether it was more-likely-than-not that the fair value of any reporting unit was less than its carrying amount. We assessed economic conditions, including projections of the duration of current conditions and timing of a potential recovery; industry and market considerations; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units including merger synergies; the market price of our common stock and other relevant events. At the conclusion of the assessment, we determined that it was not more-likely-than-not that the fair value of each reporting unit was less than its carrying amount.



54




We could incur impairment charges related to goodwill in the future due to changes in financial results or other matters that could affect the fair value of our reporting units.


Selected Financial Data

The following table provides our selected financial information for the periods and at the dates indicated. This information should be read together with our Consolidated Financial Statements and the related notes thereto, which are included elsewhere in this report. Our financial results were significantly impacted by the Merger, and periods before the Merger reflect financial data of Legacy TCF, while periods after the Merger reflect financial data for the combined company. Earnings per share and share quantities of TCF have been retrospectively adjusted to reflect the equivalent number of shares issued in the Merger. As noted in the following table, we have included certain non-GAAP financial measures, which should be read in conjunction with the section entitled "Non-GAAP Financial Measures" and the accompanying table entitled "Reconciliation of Non-GAAP Operating Results," for an explanation of the use of non-GAAP financial measures in this Quarterly Report on Form 10-Q and a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measure. Historical data is not necessarily indicative of TCF's future results of operations or financial condition.
 
 
For the Three Months Ended
(Dollars in thousands, except per share data)
 
March 31, 2020
 
December 31, 2019

 
March 31, 2019
Consolidated Income:
 
 
 
 
 
 
Interest income
 
$
495,392

 
$
509,778

 
$
306,894

Interest expense
 
93,911

 
101,025

 
52,465

Net interest income
 
401,481

 
408,753

 
254,429

Noninterest income
 
136,963

 
158,052

 
103,504

Total revenue
 
538,444

 
566,805

 
357,933

Provision for credit losses
 
96,943

 
14,403

 
10,122

Noninterest expense
 
374,599

 
416,571

 
253,075

Income before income tax expense
 
66,902

 
135,831

 
94,736

Income tax expense
 
13,086

 
21,375

 
21,287

Income attributable to non-controlling interest
 
1,917

 
2,057

 
2,955

Net income attributable to TCF
 
51,899

 
112,399

 
70,494

Preferred stock dividends
 
2,493

 
2,494

 
2,493

Net income available to common shareholders
 
$
49,406

 
$
109,905

 
$
68,001

Earnings per common share:
 
 
 
 
 
 
Basic
 
$
0.33

 
$
0.72

 
$
0.83

Diluted
 
0.32

 
0.72

 
0.83

Financial Ratios:
 
 
 
 
 
 
Return on average assets ("ROAA")(1)
 
0.46
%
 
0.99
%
 
1.22
%
Return on average common equity ("ROACE")(1)
 
3.64

 
8.00

 
11.40

Return on average tangible common equity ("ROATCE")(1)(2)
 
5.42

 
11.35

 
12.42

Net interest margin (FTE)(1)(3)(4)
 
3.76

 
3.89

 
4.61

Dividend payout ratio
 
109.38

 
48.61

 
35.57

Efficiency ratio
 
69.57

 
73.49

 
70.70

Credit Quality Ratios:
 
 
 
 
 
 
Net charge-offs as a percentage of average loans and leases(1)
 
0.06

 
0.07

 
0.39

Adjusted Financial Results (non-GAAP):
 
 
 
 
 
 
Adjusted net income attributable to TCF(2)
 
$
89,855

 
$
161,581

 
$
77,700

Adjusted diluted earnings per common share(2)
 
$
0.57

 
$
1.04

 
$
0.91

Adjusted ROAA(1)(2)
 
0.78
%
 
1.42
%
 
1.34
%
Adjusted ROACE(1)(2)
 
6.43

 
11.57

 
12.61

Adjusted ROATCE(1)(2)
 
9.24

 
16.25

 
13.72

Adjusted efficiency ratio (non-GAAP)(2)
 
58.24

 
58.51

 
65.67

(1)
Annualized.
(2)
See section entitled "Non-GAAP Financial Measures" for further information.
(3)
Net interest income on a fully tax-equivalent ("FTE") basis divided by average interest-earning assets.
(4)
Presented on a tax-equivalent basis using a 21% tax rate for each period presented.



55




(Dollars in thousands)
 
At March 31, 2020
 
At December 31, 2019
Consolidated Financial Condition:
 
 
 
 
Loans and leases
 
$
35,921,614

 
$
34,497,464

Total assets
 
48,594,383

 
46,651,553

Deposits
 
35,799,303

 
34,468,463

Borrowings
 
6,083,129

 
5,023,593

Total equity
 
5,655,833

 
5,727,241

Financial Ratios:
 
 
 
 
Common equity to assets
 
11.23
%
 
11.87
%
Tangible common equity as a percent of tangible assets (non-GAAP)(1)
 
8.45
%
 
9.01
%
Total risk-based capital ratio
 
12.31
%
 
12.70
%
Book value per common share
 
$
35.85

 
$
36.20

Tangible book value per common share (non-GAAP)(1)
 
26.16

 
26.60

Credit Quality Ratios:
 
 
 
 
Nonaccrual loans and leases as a percentage of total loans and leases(2)
 
0.70
%
 
0.49
%
Nonperforming assets as a percentage of total loans and leases and other real estate owned
 
0.80
%
 
0.59
%
Allowance for credit losses as a percentage of total nonaccrual loans and leases
 
162.24
%
 
66.64
%
(1)
See section entitled "Non-GAAP Financial Measures" for further information.
(2)
Prior to the adoption of CECL as of January 1, 2020, purchased credit impaired loans were not classified as nonaccrual loans because they were recorded at their net realizable value based on the principal and interest expected to be collected on the loans. At January 1, 2020, $73.4 million of previous purchased credit impaired loans were classified as nonaccrual loans.

Results of Operations

Performance Summary We reported net income of $51.9 million for the three months ended March 31, 2020, compared with $112.4 million for the three months ended December 31, 2019 and $70.5 million for the three months ended March 31, 2019. Merger-related expenses included in net income totaled $36.7 million for the three months ended March 31, 2020, $47.0 million for the three months ended December 31, 2019 and $9.5 million for the three months ended March 31, 2019. Notable items, on a pre-tax basis, for the three months ended March 31, 2020, included $8.2 million of loan servicing rights impairment and $3.1 million of expenses related to the sale of the Legacy TCF auto finance portfolio. Notable items, for the three months ended December 31, 2019, included a $12.9 million loss on the sale of Legacy TCF auto finance portfolio and related expenses, $6.3 million of expense related to pension fair valuation adjustment on plans with previously announced terminations, $3.5 million of write-downs of company-owned vacant land parcels and branch exit costs, and a $638 thousand loan servicing rights impairment recovery. Adjusted net income, a non-GAAP financial measure that excludes merger-related expenses and the identified notable items, net of tax, was $89.9 million for the three months ended March 31, 2020, compared to $161.6 million for the three months ended December 31, 2019 and $77.7 million for the three months ended March 31, 2019. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

We reported diluted earnings per common share of $0.32 for the three months ended March 31, 2020, compared with $0.72 for the three months ended December 31, 2019 and $0.83 for the three months ended March 31, 2019. Adjusted diluted earnings per common share, a non-GAAP financial measure that excludes merger-related expenses and notable items was $0.57 for the three months ended March 31, 2020, compared to $1.04 for the three months ended December 31, 2019 and $0.91 for the three months ended March 31, 2019. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.



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The following table provides our financial ratios and the adjusted ratios (non-GAAP), which exclude merger expenses and notable items.
Summary of Financial Ratios
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
Change From
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
 
Three Months Ended December 31,
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
Return on average assets ("ROAA")(1)
0.46
%
 
0.99
%
 
1.22
%
 
(53
)
bps
 
(76
)
bps
ROACE(1)
3.64

 
8.00

 
11.40

 
(436
)
 
 
(776
)
 
ROATCE (non-GAAP)(1)(2)
5.42

 
11.35

 
12.42

 
(593
)
 
 
(700
)
 
Efficiency ratio
69.57

 
73.49

 
70.70

 
(392
)
 
 
(113
)
 
Adjusted Financial Results (non-GAAP)
 
 
 
 
 
 
 
 
 

 
Adjusted ROAA(1)(2)
0.78
%
 
1.42
%
 
1.34
%
 
(64
)
bps
 
(56
)
bps
Adjusted ROACE(1)(2)
6.43

 
11.57

 
12.61

 
(514
)
 
 
(618
)
 
Adjusted ROATCE(1)(2)
9.24

 
16.25

 
13.72

 
(701
)
 
 
(448
)
 
Adjusted efficiency ratio(2)
58.24

 
58.51

 
65.67

 
(27
)
 
 
(743
)
 
(1)
Annualized.
(2)
See section entitled "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Consolidated Income Statement Analysis

Net Interest Income Net interest income was $401.5 million for the three months ended March 31, 2020, compared with $408.8 million for the three months ended December 31, 2019 and $254.4 million for the three months ended March 31, 2019. Net interest income, our largest source of net revenue (net interest income plus noninterest income), represented 74.6% of our total revenue for the three months ended March 31, 2020, compared with 72.1% for the three months ended December 31, 2019 and 71.1% for the three months ended March 31, 2019. The decrease in net interest income for the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to the impact of the Federal Reserve's rate cuts that took place during the quarter in addition to a decrease in the benefit provided by purchase accounting accretion and amortization. The increase in net interest income for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the increase in interest-earning assets acquired in the Merger, partially offset by the increase in interest-bearing liabilities acquired in the Merger.

Net interest income, on a fully tax-equivalent ("FTE") basis, was $404.5 million for the three months ended March 31, 2020, compared to $411.6 million for the three months ended December 31, 2019 and $256.2 million for the three months ended March 31, 2019. Net interest income (FTE) is the difference between interest income and interest expense adjusted for the tax benefit received on tax-exempt loans, leases and investment securities. Net interest margin (FTE) is calculated by dividing net interest income (FTE) by average interest-earning assets, expressed as a percentage, annualized as applicable. Net interest income and net interest margin are affected by (i) changes in prevailing short- and long-term interest rates, (ii) loan, lease and deposit pricing strategies and competitive conditions, (iii) the volume and mix of interest-earning assets, noninterest-bearing deposits and interest-bearing liabilities, (iv) the level of nonaccrual loans and leases and other real estate owned,(v) the impact of modified loans and leases, and (vi) changes in customer demand for products due to economic events. Net interest margin (FTE) was 3.76% for the three months ended March 31, 2020, compared with 3.89% for the three months ended December 31, 2019 and 4.61% for the three months ended March 31, 2019. The decrease in net interest margin (FTE) for the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to the impact of the Federal Reserve's rate cuts in addition to a decrease in the benefit provided by purchase accounting accretion and amortization. The decrease in net interest margin (FTE) for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to a decrease in the yield earned on loans and leases added as a result of the lower average yields added to the portfolio through the Merger.


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The following tables present the average balances of our major categories of assets and liabilities, interest income and expense on a FTE basis, average interest rates earned and paid on the assets and liabilities, net interest income (FTE), net interest spread and net interest margin for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019. The presentation of net interest income on a FTE basis is not in accordance with GAAP but is customary in the banking industry. This non-GAAP measure ensures comparability of net interest income arising from both taxable and tax-exempt loans and investment securities.
 
Three Months Ended
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
(Dollars in thousands)
Average
Balance
 
Interest(1)
 
Yields &
Rates
(1)(2)
 
Average
Balance
 
Interest(1)
 
Yields &
Rates
(1)(2)
 
Average
Balance
 
Interest(1)
 
Yields &
Rates
(1)(2)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank and Federal Reserve Bank stocks
$
454,675

 
$
3,152

 
2.79
%
 
$
388,640

 
$
3,170

 
3.24
%
 
$
105,135

 
$
961

 
3.70
%
Investment securities held-to-maturity
136,277

 
560

 
1.64

 
140,434

 
889

 
2.53

 
147,556

 
535

 
1.45

Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
5,892,006

 
40,360

 
2.74

 
4,960,520

 
35,393

 
2.85

 
2,121,196

 
16,131

 
3.04

Tax-exempt(3)
773,468

 
5,503

 
2.85

 
778,994

 
5,536

 
2.84

 
516,995

 
3,397

 
2.63

Loans and leases held-for-sale
138,058

 
1,561

 
4.53

 
1,121,326

 
15,767

 
5.58

 
55,204

 
825

 
6.05

Loans and leases(1)(3)(4)
34,946,147

 
444,925

 
5.08

 
33,804,883

 
448,472

 
5.24

 
19,186,962

 
284,247

 
5.97

Interest-bearing deposits with banks and other
538,971

 
2,314

 
1.72

 
656,555

 
3,448

 
2.07

 
261,556

 
2,520

 
3.87

Total interest-earning assets
42,879,602

 
498,375

 
4.64

 
41,851,352

 
512,675

 
4.85

 
22,394,604

 
308,616

 
5.55

Other assets
4,105,824

 
 
 
 
 
4,268,162

 
 
 
 
 
1,712,337

 
 
 
 
Total assets
$
46,985,426

 
 
 
 
 
$
46,119,514

 
 
 
 
 
$
24,106,941

 
 
 
 
Liabilities and Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
$
7,929,933

 
 
 
 
 
$
7,968,769

 
 
 
 
 
$
3,919,746

 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking
5,990,309

 
5,830

 
0.39

 
5,891,566

 
7,614

 
0.51

 
2,457,767

 
387

 
0.06

Savings
8,589,815

 
13,669

 
0.64

 
8,404,460

 
14,993

 
0.71

 
6,253,992

 
10,670

 
0.69

Money market
4,792,248

 
14,855

 
1.25

 
4,463,476

 
15,537

 
1.38

 
1,490,631

 
4,453

 
1.21

Certificates of deposit
7,329,632

 
33,065

 
1.81

 
7,825,573

 
38,859

 
1.97

 
4,622,120

 
22,098

 
1.94

Total interest-bearing deposits
26,702,004

 
67,419

 
1.02

 
26,585,075

 
77,003

 
1.15

 
14,824,510

 
37,608

 
1.03

Total deposits
34,631,937

 
67,419

 
0.78

 
34,553,844

 
77,003

 
0.88

 
18,744,256

 
37,608

 
0.81

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
2,689,262

 
10,582

 
1.56

 
2,585,682

 
11,403

 
1.73

 
293,499

 
1,957

 
2.67

Long-term borrowings
2,608,204

 
15,910

 
2.42

 
1,739,852

 
12,620

 
2.87

 
1,500,832

 
12,900

 
3.44

Total borrowings
5,297,466

 
26,492

 
1.98

 
4,325,534

 
24,023

 
2.19

 
1,794,331

 
14,857

 
3.31

Total interest-bearing liabilities
31,999,470

 
93,911

 
1.18

 
30,910,609

 
101,026

 
1.29

 
16,618,841

 
52,465

 
1.28

Total deposits and borrowings
39,929,403

 
93,911

 
0.94

 
38,879,378

 
101,026

 
1.03

 
20,538,587

 
52,465

 
1.03

Other liabilities
1,425,536

 
 
 
 
 
1,549,017

 
 
 
 
 
989,104

 
 
 
 
Total liabilities
41,354,939

 
 
 
 
 
40,428,395

 
 
 
 
 
21,527,691

 
 
 
 
Total TCF Financial Corporation shareholders' equity
5,605,159

 
 
 
 
 
5,667,436

 
 
 
 
 
2,554,729

 
 
 
 
Non-controlling interest in subsidiaries
25,328

 
 
 
 
 
23,683

 
 
 
 
 
24,521

 
 
 
 
Total equity
5,630,487

 
 
 
 
 
5,691,119

 
 
 
 
 
2,579,250

 
 
 
 
Total liabilities and equity
$
46,985,426

 
 
 
 
 
$
46,119,514

 
 
 
 
 
$
24,106,941

 
 
 
 
Net interest spread (FTE)
 
 
 
 
3.70

 
 
 
 
 
3.82

 
 
 
 
 
4.52

Net interest income (FTE) and net interest margin (FTE)
 
 
$404,464
 
3.76

 
 
 
$411,649
 
3.89

 
 
 
$256,151
 
4.61

Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income (FTE)
 
 
$
404,464

 
 
 
 
 
$
411,649

 
 
 
 
 
$
256,151

 
 
Adjustments for taxable equivalent interest(1)(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and leases
 
 
$
(1,829
)
 
 
 
 
 
$
(1,734
)
 
 
 
 
 
$
(1,009
)
 
 
Tax-exempt investment securities
 
 
(1,154
)
 
 
 
 
 
(1,162
)
 
 
 
 
 
(713
)
 
 
Total FTE adjustments
 
 
(2,983
)
 
 
 
 
 
(2,896
)
 
 
 
 
 
(1,722
)
 
 
Net interest income (GAAP)
 
 
$
401,481

 
 
 
 
 
$
408,753

 
 
 
 
 
$
254,429

 
 
Net interest margin (GAAP)
 
 
3.73
%
 
 
 
 
 
3.86
%
 
 
 
 
 
4.58
%
 
 
(1)
Interest and yields are presented on a FTE basis.
(2)
Annualized.
(3)
The yield on tax-exempt loans, leases and investment securities available-for-sale is computed on a FTE basis using a statutory federal income tax rate of 21%.
(4)
Average balances of loans and leases include nonaccrual loans and leases and are presented net of unearned income.


58




Volume and Rate Variance Analysis
 
Three Months Ended March 31, 2020 vs. December 31, 2019
 
Three Months Ended March 31, 2020 vs. March 31, 2019
 
Increase (Decrease)
Due to Changes in
 
 
 
Increase (Decrease)
Due to Changes in
 
 
(Dollars in thousands)
Average Volume(1)
 
Average Yield/Rate(1)
 
Total Change
 
Average Volume(1)
 
Average Yield/Rate(1)
 
Total Change
Changes in Interest Income on Interest-Earning Assets:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank and Federal Reserve Bank stocks
$
492

 
$
(510
)
 
$
(18
)
 
$
2,450

 
$
(259
)
 
$
2,191

Investment securities held-to-maturity
(26
)
 
(303
)
 
(329
)
 
(43
)
 
68

 
25

Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Taxable
6,427

 
(1,460
)
 
4,967

 
25,980

 
(1,751
)
 
24,229

Tax-exempt
(39
)
 
6

 
(33
)
 
1,805

 
301

 
2,106

Loans and leases held-for-sale
(11,690
)
 
(2,516
)
 
(14,206
)
 
983

 
(247
)
 
736

Loans and leases
13,424

 
(16,971
)
 
(3,547
)
 
207,371

 
(46,693
)
 
160,678

Interest-bearing deposits with banks and other
(577
)
 
(557
)
 
(1,134
)
 
1,703

 
(1,909
)
 
(206
)
Total interest-earning assets
$
8,011

 
$
(22,311
)
 
$
(14,300
)
 
$
240,249

 
$
(50,490
)
 
$
189,759

Changes in Interest Expense on Interest-Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Checking
$
121

 
$
(1,905
)
 
$
(1,784
)
 
$
1,178

 
$
4,265

 
$
5,443

Savings
310

 
(1,634
)
 
(1,324
)
 
3,717

 
(718
)
 
2,999

Money market
1,061

 
(1,743
)
 
(682
)
 
10,106

 
296

 
10,402

Certificates of deposit
(2,420
)
 
(3,374
)
 
(5,794
)
 
12,121

 
(1,154
)
 
10,967

Interest-bearing deposits
(928
)
 
(8,656
)
 
(9,584
)
 
27,122

 
2,689

 
29,811

Short-term borrowings
403

 
(1,224
)
 
(821
)
 
9,772

 
(1,147
)
 
8,625

Long-term borrowings
5,498

 
(2,208
)
 
3,290

 
7,637

 
(4,627
)
 
3,010

Total interest-bearing liabilities
$
4,973

 
$
(12,088
)
 
$
(7,115
)
 
$
44,531

 
$
(3,085
)
 
$
41,446

Total change in net interest income (FTE)(2)
$
3,038

 
$
(10,223
)
 
$
(7,185
)
 
$
195,718

 
$
(47,405
)
 
$
148,313

(1)
Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.
(2)
FTE basis using a federal income tax rate of 21%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.

Provision for Credit Losses The provision for credit losses was $96.9 million for the three months ended March 31, 2020, compared with $14.4 million for the three months ended December 31, 2019 and $10.1 million for the three months ended March 31, 2019. The increase in both periods was primarily due to the impact of the COVID-19 pandemic and was additionally impacted by the adoption of CECL. Prior to the adoption of CECL on January 1, 2020, the allowance for credit losses was calculated under an incurred loss model which delayed recognition of loss until it was probable the loss had been incurred. The accounting under CECL considers current credit losses expected to be incurred in the loan and lease portfolios over the remaining expected life of each financial asset and considers expected future changes in macroeconomic conditions. In addition, as a result of the adoption of CECL, the provision for credit losses now includes the provision for unfunded commitments that was previously included within other noninterest expense. The provision for unfunded commitments was $4.0 million for the three months ended March 31, 2020. The provision for credit losses is predominantly a function of our reserving methodology used to determine the appropriate level of the allowance for credit losses, which is a critical accounting estimate. The COVID-19 pandemic could result in the recognition of additional credit losses in our loan and lease portfolios and increase our allowance for credit losses as both businesses and consumers are negatively impacted by the economic downturn in future periods.

An analysis of the allowance for credit losses is presented under "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis.



59




Noninterest Income The components of noninterest income were as follows:
 
Three Months Ended
 
Change from
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
 
December 31, 2019
 
March 31, 2019
(Dollars in thousands)
 
 
 
$
 
% / bps
 
$
 
% / bps
Fees and service charges on deposit accounts
$
34,597

 
$
39,356

 
$
26,278

 
$
(4,759
)
 
(12.1
)%
 
$
8,319

 
31.7
 %
Leasing revenue
33,565

 
46,686

 
38,165

 
(13,121
)
 
(28.1
)
 
(4,600
)
 
(12.1
)
Card and ATM revenue
21,685

 
24,751

 
18,659

 
(3,066
)
 
(12.4
)
 
3,026

 
16.2

Net gains on sales of loans and leases
20,590

 
12,934

 
8,217

 
7,656

 
59.2

 
12,373

 
150.6

Servicing fee revenue
6,792

 
6,022

 
5,110

 
770

 
12.8

 
1,682

 
32.9

Wealth management revenue
6,151

 
6,172

 

 
(21
)
 
(0.3
)
 
6,151

 
N.M.

Net gains on investment securities

 
8

 
451

 
(8
)
 
(100.0
)
 
(451
)
 
(100.0
)
Other
13,583

 
22,123

 
6,624

 
(8,540
)
 
(38.6
)
 
6,959

 
105.1

Total noninterest income
$
136,963

 
$
158,052

 
$
103,504

 
$
(21,089
)
 
(13.3
)
 
$
33,459

 
32.3

Total noninterest income as a percentage of total revenue
25.4
%

27.9
%
 
28.9
%
 


 
(250) bps

 
 
 
(350) bps

 
 
 
 
 
 
 
 
 

 
 
 
 
N.M. Not Meaningful

Noninterest income was $137.0 million for the three months ended March 31, 2020, compared to $158.1 million for the three months ended December 31, 2019 and $103.5 million for the three months ended March 31, 2019. Noninterest income included $8.2 million of loan servicing rights impairment for the three months ended March 31, 2020, compared to $0.6 million of loan servicing rights impairment recovery for the three months ended December 31, 2019, considered notable items. Loan servicing rights impairment and impairment recovery are recorded within other noninterest income. The three months ended December 31, 2019, also included an $8.2 million loss related to the sale of the Legacy TCF auto finance portfolio included in net gains on sales of loans and leases as a notable item. Adjusted noninterest income, a non-GAAP financial measure that excludes the identified notable items, was $145.2 million for the three months ended March 31, 2020, compared to $165.6 million for the three months ended December 31, 2019 and $103.5 million for the three months ended March 31, 2019. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information. As a result of the COVID-19 pandemic, we have faced and may continue to face a decrease in demand and transaction levels for our products and services which would result in a decline in noninterest income in future periods.

Fees and service charges on deposit accounts Fees and service charges on deposit accounts were $34.6 million for the three months ended March 31, 2020, compared with $39.4 million for the three months ended December 31, 2019 and $26.3 million for the three months ended March 31, 2019. The decrease for three months ended March 31, 2020, compared to the three months ended December 31, 2019, was partly due to a decline in overdraft fees charged in the month of March in response to the COVID-19 pandemic. The increase for three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily attributable to incremental fees resulting from the Merger.

Leasing revenue Leasing revenue was $33.6 million for the three months ended March 31, 2020, compared with $46.7 million for the three months ended December 31, 2019 and $38.2 million for the three months ended March 31, 2019. Leasing revenue is impacted by changes in our operating lease revenue and sales-type lease revenue through our equipment financing activity.

Card and ATM revenue Card and ATM revenue was $21.7 million for the three months ended March 31, 2020, compared with $24.8 million for the three months ended December 31, 2019 and $18.7 million for the three months ended March 31, 2019. The decrease for three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to a reduction in debit card activity partly related to governmental imposed restrictions on activities as a result of the COVID-19 pandemic. The increase for three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to incremental revenue resulting from the Merger.



60




Net gains on sales of loans and leases Net gains on sales of loans and leases were $20.6 million for the three months ended March 31, 2020, compared with $12.9 million for the three months ended December 31, 2019 and $8.2 million for the three months ended March 31, 2019. The increase for three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to the $8.2 million loss related to the sale of the Legacy TCF auto finance portfolio recognized in the three months ended December 31, 2019. The increase for three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to higher volume of consumer loans sold resulting from the Merger. We sold $535.8 million of residential mortgage loans during the three months ended March 31, 2020, compared with $1.8 billion during the three months ended December 31, 2019 and $266.2 million during the three months ended March 31, 2019.

Servicing fee revenue Servicing fee revenue was $6.8 million for the three months ended March 31, 2020, compared with $6.0 million for the three months ended December 31, 2019 and $5.1 million for the three months ended March 31, 2019. The increase for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the incremental servicing fee revenue resulting from the Merger and the transitional servicing fee received on the Legacy TCF auto finance portfolio that was sold in the fourth quarter of 2019. The first quarter 2020 is the final quarter for recognition of the transitional servicing fee revenue on the Legacy TCF auto finance portfolio.

Wealth management Wealth management revenue is comprised of investment fees that are generally based on the market value of assets within a trust account, custodial fees and fees from the sale of investment products and is a revenue stream added as a result of the Merger. Revenues from wealth management were $6.2 million for both the three months ended March 31, 2020 and December 31, 2019.

Net gains on investment securities There were no sales of investment securities for the three months ended March 31, 2020, compared with $8 thousand of net gains on sales of investment securities for the three months ended December 31, 2019 and $0.5 million for the three months ended March 31, 2019.

Other Other noninterest income was $13.6 million for the three months ended March 31, 2020, compared with $22.1 million for the three months ended December 31, 2019 and $6.6 million for the three months ended March 31, 2019. The decrease for three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to the recognition of $8.2 million of loan servicing rights impairment primarily driven by a decline in market interest rates and an increase in prepayment speeds. The increase for three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to an increase in incremental revenue resulting from the Merger, partially offset by the recognition of $8.2 million of loan servicing rights impairment.

Noninterest Expense The components of noninterest expense were as follows:
 
Three Months Ended
 
Change from
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
 
December 31, 2019
 
March 31, 2019
(Dollars in thousands)
 
 
 
$
 
% / bps
 
$
 
% / bps
Compensation and employee benefits
$
171,528

 
$
180,969

 
$
123,942

 
$
(9,441
)
 
(5.2
)%
 
$
47,586

 
38.4
 %
Occupancy and equipment
57,288

 
56,771

 
41,710

 
517

 
0.9

 
15,578

 
37.3

Lease financing equipment depreciation
18,450

 
18,629

 
19,256

 
(179
)
 
(1.0
)
 
(806
)
 
(4.2
)
Net foreclosed real estate and repossessed assets
1,859

 
4,242

 
4,630

 
(2,383
)
 
(56.2
)
 
(2,771
)
 
(59.8
)
Merger-related expenses
36,728

 
47,025

 
9,458

 
(10,297
)
 
(21.9
)
 
27,270

 
N.M.

Other
88,746

 
108,935

 
54,079

 
(20,189
)
 
(18.5
)
 
34,667

 
64.1

Total noninterest expense
$
374,599

 
$
416,571

 
$
253,075

 
$
(41,972
)
 
(10.1
)
 
$
121,524

 
48.0

Full-time equivalent staff (at period end)
7,572

 
7,762

 
5,142

 
(190
)
 
(2.4
)
 
2,430

 
47.3

Efficiency ratio
69.57
%
 
73.49
%
 
70.70
%
 


 
(392
) bps
 
 
 
(113
) bps
Adjusted efficiency ratio (non-GAAP)(1)
58.24

 
58.51

 
65.67

 


 
(27
)
 
 
 
(743
)
N.M. Not Meaningful
(1)
See "Consolidated Financial Condition Analysis - Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.



61




Noninterest expense was $374.6 million for the three months ended March 31, 2020, compared to $416.6 million for the three months ended December 31, 2019 and $253.1 million for the three months ended March 31, 2019. Noninterest expense included merger-related costs of $36.7 million for the three months ended March 31, 2020, $47.0 million for the three months ended December 31, 2019 and $9.5 million for the three months ended March 31, 2019. Noninterest expense for the three months ended March 31, 2020 included $3.1 million of expenses related to the sale of the Legacy TCF auto finance portfolio ($1.6 million included in occupancy and equipment, $864 thousand included in compensation and employee benefits and $570 thousand included in other noninterest expense), considered a notable item. Noninterest expense for the three months ended December 31, 2019, included a $6.3 million detriment related to pension fair valuation adjustment on plans with previously announced terminations, included in other noninterest expense, $4.7 million of expense related to the sale of the Legacy TCF auto finance portfolio ($2.2 million in other noninterest expense, $1.5 million in occupancy and equipment expense and $930 thousand in compensation and employee benefits) and $3.5 million of expense related to the write-down of company-owned vacant land parcels and branch exit costs, included in other noninterest expense, considered notable items. Adjusted noninterest expense, a non-GAAP financial measure that excludes merger-related expenses and the identified notable items, was $334.8 million for the three months ended March 31, 2020, compared to $355.0 million for the three months ended December 31, 2019 and $243.6 million for the three months ended March 31, 2019. See "Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Compensation and employee benefits expense Compensation and employee benefits expense was $171.5 million for the three months ended March 31, 2020, compared with $181.0 million for the three months ended December 31, 2019 and $123.9 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to a decrease in commission expense as a result of lower production. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the staff additions resulting from the Merger.

Occupancy and equipment Occupancy and equipment expense was $57.3 million for the three months ended March 31, 2020, compared with $56.8 million for the three months ended December 31, 2019 and $41.7 million for the three months ended March 31, 2019. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the incremental operating costs associated with the Merger.

Lease financing equipment depreciation Lease financing equipment depreciation was $18.5 million for the three months ended March 31, 2020, compared with $18.6 million for the three months ended December 31, 2019 and $19.3 million for the three months ended March 31, 2019. Shifts in lease financing equipment depreciation are the result of changes in balances of leased equipment.

Net foreclosed real estate and repossessed assets Net foreclosed real estate and repossessed assets expense was $1.9 million for the three months ended March 31, 2020, compared with $4.2 million for the three months ended December 31, 2019 and $4.6 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to a decrease in repossession expense.

Merger-related expenses Merger-related expenses related to the Merger were $36.7 million for the three months ended March 31, 2020, compared with $47.0 million for the three months ended December 31, 2019 and $9.5 million for the three months ended March 31, 2019. Merger-related expenses consist primarily of professional fees and employment related expenses. We anticipate incurring a meaningful amount of merger-related expenses through the remainder of 2020.

Other noninterest expense Other noninterest expense was $88.7 million for the three months ended March 31, 2020, compared with $108.9 million for the three months ended December 31, 2019 and $54.1 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to the $6.3 million detriment related to pension fair valuation adjustment on plans with previously announced terminations and the $3.5 million of expense related to write-down of of company-owned vacant land parcels and branch exit costs recognized in the three months ended December 31, 2019. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019 was primarily due to incremental costs associated with the Merger.



62




Income Tax Expense Income tax expense was $13.1 million, or 19.6% of income before income tax expense for the three months ended March 31, 2020, compared with $21.4 million, or 15.7% of income before income tax expense, for the three months ended December 31, 2019 and $21.3 million, or 22.5% of income before income tax expense, for the three months ended March 31, 2019. The three months ended December 31, 2019 included a $3.8 million tax basis adjustment benefit. The fluctuations in our effective income tax rate reflect changes each period in the proportion of tax-exempt interest income, nondeductible expenses and credits relative to income before income tax expense.

Reportable Segment Results Our reportable segments are Consumer Banking, Commercial Banking and Enterprise Services. See "Note 22. Reportable Segments" of the Notes to Consolidated Financial Statements for further information regarding net income (loss), revenues and assets for each of our reportable segments.

Consumer Banking

Consumer Banking is comprised of all of our consumer and small business-facing businesses and includes Retail Banking, Wealth Management, Residential and Consumer Lending, and Business Banking. Our consumer banking strategy is primarily to generate deposits and originate high credit quality loans for investment and sale. Deposits are generated from consumers and small businesses to provide a source of low cost funds, with a focus on building and maintaining quality customer relationships.

Consumer Banking generated net income available to common shareholders of $36 thousand for the three months ended March 31, 2020, compared with $50.1 million for the three months ended December 31, 2019 and $28.7 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to an increase in provision for credit losses primarily due to the economic downturn related to COVID-19. The decrease in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to increases in incremental operating costs and an increase in provision for credit losses primarily due to the economic downturn related to COVID-19, partially offset by the incremental income resulting from the Merger.

Consumer Banking net interest income was $193.8 million for the three months ended March 31, 2020, compared with $205.8 million for the three months ended December 31, 2019 and $140.7 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to the Federal Reserve's rate cuts in addition to a decrease in the benefit provided by purchase accounting accretion. The increase in net interest income in the three months ended March 31, 2020, compared to the three months ended March 31, 2019 was primarily attributable to the impact of the loans acquired in the Merger, partially offset by the deposits acquired in the Merger.

Consumer Banking provision for credit losses was $44.4 million for the three months ended March 31, 2020, compared with $144 thousand for the three months ended December 31, 2019 and $7.2 million for the three months ended March 31, 2019. The increase in both periods was primarily due to the economic downturn related to COVID-19 and the adoption of CECL. The provision for credit losses is predominantly a function of our reserving methodology used to determine the appropriate level of the allowance for credit losses. For further information, see "Consolidated Income Statement Analysis — Provision for Credit Losses" and "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and "Note 8. Allowance for Credit Losses and Credit Quality" of the Notes to Consolidated Financial Statements.

Consumer Banking noninterest income was $81.4 million for the three months ended March 31, 2020, compared with $90.1 million for the three months ended December 31, 2019 and $60.5 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to decreases in fees and service charges on deposit accounts and card and ATM revenue, partially offset by the $8.2 million loss related to the sale of the Legacy TCF auto finance portfolio in the three months ended December 31, 2019. The increase in the three months ended March 31, 2020, compared to three months ended March 31, 2019, was primarily due to a higher volume of consumer loans sold resulting from the Merger. Servicing fee income attributable to the Consumer Banking segment was $6.5 million for the three months ended March 31, 2020, compared with $5.8 million for the three months ended December 31, 2019 and $4.8 million for the three months ended March 31, 2019. Servicing fee income in the three months ended March 31, 2020 included transitional servicing fee received on the Legacy TCF auto finance portfolio that was sold in the fourth quarter of 2019. Average Consumer Banking loans serviced for others were $9.2 billion for the three months ended March 31, 2020, compared with $9.4 billion for the three months ended December 31, 2019 and $2.9 billion for the three months ended March 31, 2019.



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Consumer Banking noninterest expense was $228.9 million for the three months ended March 31, 2020, compared with $233.9 million for the three months ended December 31, 2019 and $156.5 million for the three months ended March 31, 2019. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the incremental operating costs due to the Merger.

Commercial Banking

Commercial Banking is comprised of commercial and industrial, commercial real estate banking and lease financing. Our commercial banking strategy focuses on building full commercial relationships including originating high credit quality loans and leases and providing deposit and treasury services.

Commercial Banking generated net income available to common shareholders of $56.5 million for the three months ended March 31, 2020, compared with $98.5 million for the three months ended December 31, 2019 and $38.2 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to an increase in provision for credit losses primarily due to the economic downturn related to COVID-19. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the incremental income resulting from the Merger, partially offset by an increase in provision for credit losses primarily due to the economic downturn related to COVID-19.

Commercial Banking net interest income was $186.0 million for the three months ended March 31, 2020, compared with $185.3 million for the three months ended December 31, 2019 and $96.7 million for the three months ended March 31, 2019. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019 was primarily due to the impact of the loans acquired in the Merger, partially offset by the deposits acquired in the Merger.

Commercial Banking provision for credit losses was $52.6 million for the three months ended March 31, 2020, compared with $14.3 million for the three months ended December 31, 2019 and $2.9 million for the three months ended March 31, 2019. The increase in both periods was primarily due to the economic downturn related to COVID-19 and the adoption of CECL. The provision for credit losses is predominantly a function of our reserving methodology used to determine the appropriate level of the allowance for credit losses. For further information, see "Consolidated Income Statement Analysis — Provision for Credit Losses" and "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and "Note 8. Allowance for Credit Losses and Credit Quality" of the Notes to Consolidated Financial Statements.

Commercial Banking noninterest income was $55.8 million for the three months ended March 31, 2020, compared with with $66.0 million for the three months ended December 31, 2019 and $42.5 million for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to a decrease in leasing revenue. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to incremental revenue resulting from the Merger, partially offset by a decrease in leasing revenue.

Commercial Banking noninterest expense was $114.5 million for the three months ended March 31, 2020, compared with $116.2 million for the three months ended December 31, 2019 and $83.4 million for the three months ended March 31, 2019. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to an increase in merger-related expenses and other expenses related to the incremental costs due to the Merger.

Enterprise Services

Enterprise Services is comprised of (i) corporate treasury, which includes our 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) TCF Financial and (iv) eliminations. Our investment portfolio accounts for the earning assets within this segment. Borrowings may be used to offset reductions in deposits or to support lending activities. This segment also includes residual revenues and expenses representing the difference between actual amounts incurred by Enterprise Services and amounts allocated to the operating segments, including interest rate risk residuals such as funds transfer pricing mismatches.



64




Enterprise Services generated a net loss available to common shareholders of $7.1 million for the three months ended March 31, 2020, compared with a net loss of $38.6 million for the three months ended December 31, 2019 and net income available to common shareholders of $1.1 million for the three months ended March 31, 2019.

Enterprise Services net interest income was $21.7 million for the three months ended March 31, 2020, compared with $17.6 million for the three months ended December 31, 2019 and $17.0 million for the three months ended March 31, 2019. The increase in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to an increase in average balances of investment securities. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to the increase in average balances of investment securities acquired in the Merger.

Enterprise Services noninterest expense was $31.3 million for the three months ended March 31, 2020, compared with $66.4 million for the three months ended December 31, 2019 and $13.1 million for the same period in 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended December 31, 2019, was primarily due to decreases in merger-related expenses and compensation and employee benefits. The increase in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to an increase in merger-related expenses and other expenses related to the incremental costs due to the Merger.

Preferred stock dividends were $2.5 million for the three months ended March 31, 2020, compared with $2.5 million for both the three months ended December 31, 2019 and March 31, 2019.

Consolidated Financial Condition Analysis

Investment Securities Total investment securities available-for-sale, at fair value, were $7.0 billion at March 31, 2020, compared with $6.7 billion at December 31, 2019. Our investment securities available-for-sale are debt securities consisting primarily of fixed-rate mortgage-backed securities issued by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), and obligations of states and political subdivisions. The increase in investment securities available-for-sale was primarily due to purchases of additional residential agency mortgage-backed securities. During the first quarter 2020, we completed the reinvestment of $1.6 billion of investment securities sold in the third quarter 2019. We purchased $471.8 million of investment securities during the three months ended March 31, 2020.

Total investment securities held-to-maturity were $135.6 million at March 31, 2020, compared with $139.4 million at December 31, 2019. Our investment securities held-to-maturity portfolio consists primarily of fixed-rate mortgage-backed securities issued by the FNMA.

The amortized cost and fair value of investment securities available-for-sale and held-to-maturity were as follows:
 
At March 31, 2020
 
December 31, 2019
(In thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Investment securities available-for-sale, at fair value
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Government and government-sponsored enterprises
$
218,996

 
$
218,580

 
$
235,045

 
$
234,385

Obligations of states and political subdivisions
850,816

 
866,556

 
852,096

 
863,855

Residential mortgage-backed securities
5,029,613

 
5,220,403

 
4,866,473

 
4,929,717

Commercial mortgage-backed securities
693,359

 
719,285

 
685,212

 
691,614

Corporate debt and trust preferred securities
451

 
400

 
451

 
430

Total investment securities available-for-sale
6,793,235

 
7,025,224

 
6,639,277

 
6,720,001

Investment securities held-to-maturity
 
 
 
 
 
 
 
Residential mortgage-backed securities
131,947

 
142,302

 
135,769

 
141,168

Corporate debt and trust preferred securities
3,672

 
3,672

 
3,676

 
3,676

Total investment securities held-to-maturity
135,619

 
145,974

 
139,445

 
144,844

Total investment securities
$
6,928,854

 
$
7,171,198

 
$
6,778,722

 
$
6,864,845




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The carrying value and FTE yield of investment securities available-for-sale and investment securities held-to-maturity by final contractual maturity were as follows. 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.
 
March 31, 2020
 
Government and Government-sponsored Enterprises
 
Obligations of States and Political Subdivisions
 
Residential Mortgage-backed Securities
 
Commercial Mortgage-backed Securities
 
Corporate Debt And Trust Preferred Securities
 
Total
(Dollars in thousands)
Amount
 
Yield(1)
 
Amount
 
Yield(1)
 
Amount
 
Yield(1)
 
Amount
 
Yield(1)
 
Amount
 
Yield(1)
 
Amount
 
Yield(1)
Investment securities available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
$

 
%
 
$
66,021

 
2.17
%
 
$

 
%
 
$

 
%
 
$

 
%
 
$
66,021

 
2.17
%
Due in 1-5 years

 

 
165,230

 
2.65

 
21,066

 
1.89

 
2,998

 
1.91

 

 

 
189,294

 
2.56

Due in 5-10 years
22,207

 
2.84

 
189,749

 
2.78

 
119,112

 
2.01

 
238,872

 
2.62

 

 

 
569,940

 
2.56

Due after 10 years
196,373

 
2.77

 
445,556

 
2.87

 
5,080,226

 
2.84

 
477,414

 
2.65

 
400

 
6.6

 
6,199,969

 
2.83

Total
$
218,580

 
2.78
%
 
$
866,556

 
2.75
%
 
$
5,220,404

 
2.82
%
 
$
719,284

 
2.64
%
 
$
400

 
6.60
%
 
$
7,025,224

 
2.79
%
Investment securities held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
$

 
%
 
$

 
%
 
$

 
%
 
$

 
$

 
$

 
%
 
$

 
%
Due in 1-5 years

 

 

 

 

 

 

 

 
3,550

 
3.00

 
3,550

 
3.00

Due in 5-10 years

 

 

 

 
55

 
6.50

 

 

 

 

 
55

 
6.50

Due after 10 years

 

 

 

 
131,892

 
2.44

 

 

 
122

 
6.00

 
132,014

 
2.44

Total
$

 
%
 
$

 
%
 
$
131,947

 
2.44
%
 
$

 
%
 
$
3,672

 
3.10
%
 
$
135,619

 
2.46
%
(1)
Interest and yields are presented on a FTE basis.

See "Note 6. Investment Securities" of Notes to Consolidated Financial Statements for further information regarding our investment securities available-for-sale and investment securities held-to-maturity.

Loans and Leases Held-for-Sale

Our loans and leases held-for-sale were $287.2 million at March 31, 2020, an increase of $87.4 million, compared to $199.8 million at December 31, 2019.

Loans and Leases 

Our commercial loan and lease portfolio is comprised of commercial and industrial loans, commercial real estate loans, and lease financing. Our consumer loan portfolio is comprised of residential mortgages, consumer installment loans and home equity loans and lines of credit. Our lending markets generally consist of communities throughout our primary banking markets including Michigan, Minnesota, Illinois, Arizona, Ohio, Colorado, South Dakota and Wisconsin and additionally include Florida, Texas and California.

Total loans and leases were $35.9 billion at March 31, 2020, an increase of $1.4 billion, or 4.1%, compared to December 31, 2019. The increase was primarily due to growth in the commercial and industrial, commercial real estate and residential mortgage portfolios.



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Information about our loans and leases was as follows:
 
At March 31, 2020
 
At December 31, 2019
 
Change
(Dollars in thousands)
Amount
 
% of Total
 
Amount
 
% of Total
 
$
 
%
Commercial loan and lease portfolio:
 

 
 
 
 

 
 
 
 
 
 

Commercial and industrial
$
12,326,943

 
34.4
%
 
$
11,439,602

 
33.2
%
 
$
887,341

 
7.8
 %
Commercial real estate
9,486,904

 
26.4

 
9,136,870

 
26.5

 
350,034

 
3.8

Lease financing
2,708,998

 
7.5

 
2,699,869

 
7.8

 
9,129

 
0.3

Total commercial loan and lease portfolio
24,522,845

 
68.3

 
23,276,341

 
67.5

 
1,246,504

 
5.4

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
6,435,314

 
17.9

 
6,179,805

 
17.9

 
255,509

 
4.1

Consumer installment
1,509,953

 
4.2

 
1,542,411

 
4.5

 
(32,458
)
 
(2.1
)
Home equity
3,453,502

 
9.6

 
3,498,907

 
10.1

 
(45,405
)
 
(1.3
)
Total consumer loan portfolio
11,398,769

 
31.7

 
11,221,123

 
32.5

 
177,646

 
1.6

Total loans and leases
$
35,921,614

 
100.0
%
 
$
34,497,464

 
100.0
%
 
$
1,424,150

 
4.1
 %

Commercial Loan and Lease Portfolio

Our commercial loan and lease portfolio was $24.5 billion at March 31, 2020, an increase of $1.2 billion, or 5.4%, compared to $23.3 billion at December 31, 2019. We believe that our commercial loan and lease portfolio is well diversified across business lines and has no concentration in any one industry.

Commercial and industrial Commercial and industrial loans and lines of credit include loans to varying types of businesses, municipalities, school districts and nonprofit organizations, for the purpose of supporting working capital and operational needs and term financing of equipment. Commercial and industrial loans are secured by various types of business assets including inventory, floorplan equipment, receivables, equipment or financial instruments. Origination levels related to equipment dealers are impacted by the velocity of fundings and repayments with dealers. Commercial and industrial loans were $12.3 billion at March 31, 2020, an increase of $887.3 million, or 7.8%, compared to $11.4 billion at December 31, 2019.

Our commercial and industrial portfolio by North American Industry Classification System ("NAICS") code was as follows:
 
At March 31, 2020
(In thousands)
Total
 
Percent of Total Loan and Lease Portfolio
Retail trade
$
3,986,952

 
11.1
%
Transportation and warehouse
1,370,135

 
3.8

Manufacturing
1,344,368

 
3.7

Wholesale trade
941,535

 
2.6

Real estate rental and leasing
935,252

 
2.6

Construction
622,438

 
1.7

Health care and social assistance
524,466

 
1.5

Finance and insurance
524,113

 
1.5

Other
2,077,684

 
5.9

Total
$
12,326,943

 
34.4
%

Commercial real estate Commercial real estate loans include loans that are secured by real estate occupied by the borrower for ongoing operations, non-owner occupied real estate leased to one or more tenants and construction and development loans primarily originated for construction of commercial properties. Construction and development loans often convert to a commercial real estate loan at the completion of the construction period. Commercial real estate loans were $9.5 billion at March 31, 2020, an increase of $350.0 million, or 3.8%, compared to $9.1 billion at December 31, 2019.



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Our commercial real estate loan portfolio by property and loan type was as follows:
 
At March 31, 2020
 
At December 31, 2019
(In thousands)
Total
 
Percent of Total Loan and Lease Portfolio
 
Total
 
Percent of Total Loan and Lease Portfolio
Multifamily
$
1,892,824

 
5.3
%
 
$
1,726,450

 
5.0
%
Office
1,356,077

 
3.8

 
1,061,877

 
3.1

Retail
1,260,127

 
3.5

 
814,230

 
2.4

Warehouse
985,121

 
2.7

 
853,042

 
2.5

Hotel
764,159

 
2.1

 
612,098

 
1.8

Senior housing
671,656

 
1.9

 
523,736

 
1.5

Mixed use
483,769

 
1.3

 
382,281

 
1.1

Self‐storage
479,910

 
1.3

 
429,779

 
1.2

Other
1,593,261

 
4.5

 
2,733,377

 
7.9

Total
$
9,486,904

 
26.4
%
 
$
9,136,870

 
26.5
%

Lease financing We provide a broad range of comprehensive lease products addressing the diverse financing needs of small to large companies. Lease financing loans were $2.7 billion at both March 31, 2020 and December 31, 2019.

Our lease financing portfolio by equipment type was as follows:
 
At March 31, 2020
At December 31, 2019
(Dollars in thousands)
Balance
 
Percent of Total Loan and Lease Portfolio
 
Balance
 
Percent of Total Loan and Lease Portfolio
Specialty vehicles
$
587,187

 
1.6
%
 
$
585,829

 
1.7
%
Golf cart and turf equipment
484,791

 
1.3

 
473,476

 
1.4

Medical equipment
383,995

 
1.1

 
377,998

 
1.1

Technology and data processing equipment
235,962

 
0.7

 
248,187

 
0.7

Manufacturing equipment
208,220

 
0.6

 
226,833

 
0.7

Construction equipment
192,381

 
0.5

 
180,963

 
0.5

Material handling
154,578

 
0.4

 
138,182

 
0.4

Trucks and trailers
96,352

 
0.3

 
91,711

 
0.3

Agricultural equipment
91,722

 
0.3

 
92,392

 
0.3

Other
273,810

 
0.7

 
284,298

 
0.7

Total
$
2,708,998

 
7.5
%
 
$
2,699,869

 
7.8
%

Consumer Loan Portfolio

Our consumer loan portfolio was $11.4 billion at March 31, 2020, an increase of $177.6 million, or 1.6%, compared to $11.2 billion at December 31, 2019.

Residential mortgage Residential mortgage loans consist primarily of one-to-four family residential loans with fixed and adjustable interest rates, with amortization periods generally from 15 to 30 years. The loan-to-value ratio at the time of origination is generally 90% or less. Loans with more than an 80% loan-to-value ratio generally require private mortgage insurance. Residential mortgage loans also include loans to consumers for the construction of single family residences that are secured by these properties. Residential mortgage loans were $6.4 billion at March 31, 2020, an increase of $255.5 million, compared to $6.2 billion at December 31, 2019.



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Consumer installment Consumer installment loans consist of relatively small loan amounts to consumers to finance personal items (primarily automobiles, recreational vehicles and marine vehicles) and are comprised primarily of indirect loans purchased from dealerships. Consumer rates are both fixed and variable, with negotiable terms. Our consumer installment loans typically amortize over periods up to 60 months. Consumer loans not secured by real estate are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value, and is more difficult to control, than real estate. Consumer installment loans were $1.5 billion at both March 31, 2020 and December 31, 2019.

Home equity Home equity loans and lines of credit are comprised of loans to consumers who utilize equity in their personal residence, including junior lien mortgages, as collateral to secure the loan or line-of-credit. Our home equity portfolio totaled $3.5 billion at both March 31, 2020 (consisting of $3.0 billion of home equity lines of credit and $451.6 million of amortizing home equity loans) and December 31, 2019 (consisting of $3.0 billion of home equity lines of credit and $474.7 million of amortizing home equity loans). At March 31, 2020, $2.3 billion of our home equity lines of credit were comprised of loans with a 10-year interest-only draw period and a 20-year amortization repayment period. These home equity lines of credit include junior lien mortgages where the first lien mortgage is held by a nonaffiliated financial institution. At March 31, 2020, all were within the 10-year interest-only draw period and will not convert to amortizing loans until 2021 or later. At March 31, 2020, $662.4 million of the home equity line of credits were interest-only revolving draw loans with no defined amortization period and original draw periods of five to 40 years.

Credit Quality

Loans and Leases The following summarizes our loan and lease portfolio based on the credit quality factors that we believe are the most important and should be considered to understand the overall condition of the portfolio. The following items should be considered throughout this section:

Loans and leases that are over 90-days delinquent and accruing generally are a leading indicator for future charge-off trends.
Nonaccrual loans and leases have been charged down to the estimated fair value of the collateral less estimated selling costs, or reserved for expected loss upon workout.
Within the performing loans and leases, we classify customers within regulatory classification guidelines. Loans and leases that are "classified" are loans or leases that management has concerns regarding the ability of the borrowers to meet existing loan or lease terms and conditions, but may never become nonaccrual or result in a loss.

Past due loans and leases  Over 90-day delinquent loans and leases by type, excluding nonaccrual loans and leases, were as follows. Delinquent balances are determined based on the contractual terms of the loan or lease. See "Note 8. Allowance for Credit Losses and Credit Quality" of Notes to Consolidated Financial Statements for further information.
 
At March 31, 2020
 
At December 31, 2019
(Dollars in thousands)
90 Days or More Delinquent and Accruing
 
Percentage of Period-end Loans and Leases
 
90 Days or More Delinquent and Accruing
 
Percentage of Period-end Loans and Leases
Commercial loan and lease portfolio:
 

 
 

 
 

 
 

Commercial and industrial
$
110

 
%
 
$
331

 
%
Commercial real estate
1,442

 
0.02

 
1,440

 
0.02

Lease financing
3,045

 
0.11

 
1,901

 
0.07

Total commercial loan and lease portfolio
4,597

 
0.02

 
3,672

 
0.02

Consumer loan portfolio:
 
 
 
 
 
 
 
Residential mortgage
553

 
0.01

 
559

 
0.01

Consumer installment
5

 

 
108

 
0.01

Total consumer loan portfolio
973

 
0.01

 
667

 
0.01

Portfolios acquired with deteriorated credit quality(1)
N/A

 
N/A

 
25,737

 
10.43

Total
$
5,570

 
0.02
%
 
$
30,076

 
0.09
%
(1)
Prior to the adoption of CECL as of January 1, 2020, purchased credit impaired loans were not classified as nonaccrual loans because they were recorded at their net realizable value based on the principal and interest expected to be collected on the loans.



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Nonperforming assets  Nonperforming assets, consisting of nonaccrual loans and leases and other real estate owned, were as follows:
(Dollars in thousands)
At March 31, 2020
 
At December 31, 2019
Commercial loan and lease portfolio:
 
 
 
Commercial and industrial
$
84,157

 
$
53,812

Commercial real estate
47,032

 
29,735

Lease financing
13,170

 
10,957

Total commercial loan and lease portfolio
144,359

 
94,504

Consumer loan portfolio:
 
 
 
Residential mortgage
61,980

 
38,577

Consumer installment
989

 
714

Home equity
43,147

 
35,863

Total consumer loan portfolio
106,116

 
75,154

Nonaccrual loans and leases
250,475

 
169,658

Other real estate owned
38,914

 
34,256

Total nonperforming assets
$
289,389

 
$
203,914

Nonaccrual loans and leases as a percentage of total loans and leases
0.70
%
 
0.49
%
Nonperforming assets as a percentage of total loans and leases and other real estate owned
0.80

 
0.59

Allowance for credit losses as a percentage of nonaccrual loans and leases
162.24

 
66.64


Nonperforming assets were $289.4 million at March 31, 2020, compared with $203.9 million at December 31, 2019. The $85.5 million increase in nonaccrual loans and leases from December 31, 2019 was substantially driven by the adoption of CECL ($73.4 million of loans previously accounted for as purchased credit impaired were reclassified to nonaccrual loans as of January 1, 2020 due to the adoption of CECL).

Loans and leases are generally placed on nonaccrual status when the collection of interest or principal is 90 days or more past due unless, in the case of commercial loans, they are well secured and in process of collection. Delinquent consumer home equity loans with a junior lien are also placed on nonaccrual status when there is evidence that the related third-party first lien mortgage may be 90 days or more past due, or foreclosure, charge-off or collection action has been initiated. TDR loans are placed on nonaccrual status prior to the past due thresholds outlined above if repayment under the modified terms is not likely after performing a well-documented credit analysis. Loans on nonaccrual status are generally reported as nonaccrual loans until there is sustained repayment performance for six consecutive months, with the exception of loans not reaffirmed upon discharge in Chapter 7 bankruptcy, which remain on nonaccrual status until a well-documented credit analysis indicates full repayment of the remaining pre-discharged contractual principal and interest is likely.

The majority of our nonaccrual loans are secured by real estate. Given the nature of these assets and the related mortgage foreclosure, property sale and, if applicable, mortgage insurance claims processes, it can take 18 months or longer for a loan to migrate from initial delinquency to final disposition. This resolution process generally takes much longer for loans secured by real estate than for unsecured loans or loans secured by other property primarily due to state real estate foreclosure laws.



70




Changes in the amount of nonaccrual loans and leases were as follows:
 
At or For the Three Months Ended March 31, 2020
(In thousands)
Consumer Loan Portfolio
 
Commercial Loan and Lease Portfolio
 
Total
Balance, beginning of period
$
75,154

 
$
94,504

 
$
169,658

Transfer in of loans previously accounted for as purchased credit impaired(1)
20,560

 
52,825

 
73,385

Adjusted balance, beginning of period
95,714

 
147,329

 
243,043

Additions
25,813

 
48,657

 
74,470

Charge-offs
(2,839
)
 
(6,811
)
 
(9,650
)
Transfers to other assets
(2,536
)
 
(7,745
)
 
(10,281
)
Return to accrual status
(4,239
)
 
(7,678
)
 
(11,917
)
Payments received
(5,797
)
 
(28,274
)
 
(34,071
)
Other, net

 
(1,119
)
 
(1,119
)
Balance, end of period
$
106,116

 
$
144,359

 
$
250,475

(1) Prior to the adoption of CECL as of January 1, 2020, purchased credit impaired loans were not classified as nonaccrual loans because they were recorded at their net realizable value based on the principal and interest expected to be collected on the loans.

Interest income recognized on loans and leases in nonaccrual status was $4.4 million for the three months ended March 31, 2020, compared to $4.8 million for the three months ended December 31, 2019 and $223 thousand for the three months ended March 31, 2019.

See "Note 8. Allowance for Credit Losses and Credit Quality" of Notes to Consolidated Financial Statements for further information.

Loan and lease credit classifications We assess the risk of our loan and lease portfolio utilizing numerous risk characteristics as outlined in the previous sections. Credit classifications are an additional characteristic monitored in the overall credit risk process. Loan and lease credit classifications are derived from standard regulatory rating definitions, which include: non-classified (pass and special mention) and classified (substandard and doubtful). Classified loans and leases have well-defined weaknesses, but may never result in a loss.

Loans and leases by portfolio and regulatory classification were as follows:
 
At March 31, 2020
 
Non-classified
 
Classified
 
Total
(In thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Commercial loan and lease portfolio:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
11,768,892

 
$
312,655

 
$
239,189

 
$
6,207

 
$
12,326,943

Commercial real estate
9,154,362

 
239,795

 
92,747

 

 
9,486,904

Lease financing
2,652,615

 
30,601

 
25,782

 

 
2,708,998

Total commercial loan and lease portfolio
23,575,869

 
583,051

 
357,718

 
6,207

 
24,522,845

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
Residential mortgage
6,368,073

 
775

 
66,466

 

 
6,435,314

Consumer installment
1,508,947

 

 
1,006

 

 
1,509,953

Home equity
3,405,219

 
669

 
47,614

 

 
3,453,502

Total consumer loan portfolio
11,282,239

 
1,444

 
115,086

 

 
11,398,769

Total loans and leases
$
34,858,108

 
$
584,495

 
$
472,804

 
$
6,207

 
$
35,921,614





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At December 31, 2019
 
Non-classified
 
Classified
 
Total
(In thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Commercial loan and lease portfolio:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
10,930,939

 
$
315,097

 
$
193,566

 
$

 
11,439,602

Commercial real estate
8,891,361

 
170,114

 
75,395

 

 
9,136,870

Lease financing
2,646,874

 
28,091

 
24,904

 

 
2,699,869

Total commercial loan and lease portfolio
22,469,174

 
513,302

 
293,865

 

 
23,276,341

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
Residential mortgage
6,135,096

 
565

 
44,144

 

 
6,179,805

Consumer installment
1,541,524

 

 
887

 

 
1,542,411

Home equity
3,457,292

 
456

 
41,159

 

 
3,498,907

Total consumer loan portfolio
11,133,912

 
1,021

 
86,190

 

 
11,221,123

Total loans and leases
$
33,603,086

 
$
514,323

 
$
380,055

 
$

 
$
34,497,464


Total classified loans and leases in our loan and lease portfolio were $479.0 million at March 31, 2020, compared with $380.1 million at December 31, 2019. The increase was primarily due to downgrades in our commercial loan and lease portfolio.

Loan modifications  Troubled debt restructuring ("TDR") loans are loans to financially troubled borrowers that have been modified such that we have granted a concession in terms to improve the likelihood of collection of all principal and modified interest owed. TDR loans were as follows:
 
At March 31, 2020
 
At December 31, 2019
(Dollars 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
$
9,655

 
$
10,313

 
$
19,968

 
$
12,986

 
$
5,356

 
$
18,342

Consumer loan portfolio
13,248

 
17,331

 
30,579

 
12,403

 
14,875

 
27,278

Total
$
22,903

 
$
27,644

 
$
50,547

 
$
25,389

 
$
20,231

 
$
45,620

Over 90-day delinquency as a percentage of total accruing TDR loans
0.21
%
 
N.A.

 
N.A.

 
0.52
%
 
N.A.

 
N.A.

N.A. Not Applicable

Total TDRs were $50.5 million at March 31, 2020, compared with $45.6 million at December 31, 2019.

Loan modifications to borrowers who have not been granted concessions are not considered TDR loans and therefore are not included in the table above. TDR loans with an interest rate consistent with market rates on loans with comparable risk at the time of restructuring and performing based on the restructured terms are no longer disclosed as TDR loans in the calendar years after modification; however, these loans are still considered impaired and follow our impaired loan reserve policies.
 
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.

Interest income recognized on TDR loans and contractual interest that would have been recorded had the TDR loans performed in accordance with their original contractual terms were as follows:
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Contractual interest due on TDR loans
$
321

 
$
1,619

Interest income recognized on TDR loans
292

 
1,109

Unrecognized interest income
$
29

 
$
510


See "Note 8. Allowance for Credit Losses and Credit Quality" of Notes to Consolidated Financial Statements for further information.



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Allowance for Credit Losses  The Corporation's reserve methodology used to determine the appropriate level of the ACL is a critical accounting estimate. The ACL is maintained at a level believed to be appropriate to provide for the current credit losses expected to be incurred by the portfolio over the life of each financial asset as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. The collective evaluation of expected losses in these portfolios is based on their probability of default multiplied by historical loss rates, as well as adjustments for forward-looking information, including industry and macroeconomic forecasts. Factors utilized in the determination of the amount of the allowance include historic loss experience, current economic forecasts and measurement date credit risk characteristics such as product type, lien position, delinquency, collateral value, credit bureau scores and financial statement ratios. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly.

We consider our ACL of $406.4 million, or 1.13% of total loans and leases, appropriate to cover current credit losses expected to be incurred in the loan and lease portfolios over the life of each financial asset at March 31, 2020, including loans and leases which are not currently known to require specific allowances. Our ACL at March 31, 2020 includes the impact of the economic downturn related to the COVID-19 pandemic. However, no assurance can be given that we will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved or will not require significant changes in the balance of the ACL due to subsequent evaluations of the loan and lease portfolios, in light of factors then prevailing, including economic conditions, information obtained during our ongoing credit review process or regulatory requirements. Among other factors, economic slowdown, increasing levels of unemployment, declines in collateral values and/or rising interest rates may have an adverse impact on the current adequacy of our ACL by increasing credit risk and the risk of potential loss.

The total ACL is expected to absorb losses from any segment of the portfolio. The allocation of our ACL disclosed in the following table is subject to change based on changes in the criteria used to evaluate the allowance.

Prior to the adoption of CECL on January 1, 2020, the ACL was calculated under an incurred loss model which delayed recognition of loss until it was probable the loss had been incurred in comparison to the accounting under CECL which considers current credit losses expected to be incurred in the loan and lease portfolios over the life of each financial asset.

Detailed information regarding our credit loss reserves was as follows:
 
At March 31, 2020
 
At December 31, 2019
 
Credit Loss Reserves(1)
 
Credit Loss Reserves(1)
(Dollars in thousands)
Amount
 
As a Percentage of Portfolio
 
Amount
 
As a Percentage of Portfolio
Commercial loan and lease portfolio:
 

 
 
 
 
 
 
Commercial and industrial
$
117,507

 
0.95
%
 
$
42,430

 
0.38
%
Commercial real estate
86,209

 
0.91

 
27,308

 
0.29

Lease financing
27,610

 
1.02

 
14,742

 
0.55

Total commercial loan and lease portfolio
231,326

 
0.94

 
84,480

 
0.36

Consumer loan portfolio:
 
 
 
 
 
 
 
Residential mortgage
97,185

 
1.51

 
8,099

 
0.13

Consumer installment
20,178

 
1.34

 
2,678

 
0.17

Home equity
57,694

 
1.67

 
17,795

 
0.51

Total consumer loan portfolio
175,057

 
1.54

 
28,572

 
0.25

Total allowance for credit losses
406,383

 
1.13

 
113,052

 
0.33

Other credit loss reserves:
 
 
 
 
 
 
 
Reserves for unfunded commitments
22,188

 
N.A.

 
3,528

 
N.A.

Total credit loss reserves(1)
$
428,571

 
1.19
%
 
$
116,580

 
0.34
%
N.A. Not Applicable
(1)
Credit loss reserves effective January 1, 2020 are calculated under the guidance of CECL. At December 31, 2019 credit loss reserves were calculated under the guidance of ASC Topic 310 prior to adoption of CECL, See "Note 3. Summary of Significant Accounting Policies" and "Note 8. Allowance for Credit Losses and Credit Quality" of Notes to Consolidated Financial Statements for further information.



73




Net loan and lease charge-offs for the three months ended March 31, 2020 were $5.5 million, or 0.06%, of average loans and leases (annualized) compared with $6.2 million, or 0.07% of average loans and leases (annualized), for the three months ended December 31, 2019 and $18.7 million, or 0.39% of average loans and leases (annualized), for the three months ended March 31, 2019. The decrease in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to a decrease in charge-offs in our consumer loan portfolio.

Investment Securities Held-to-Maturity The investment securities held-to-maturity portfolio consist primarily of fixed-rate mortgage-backed securities issued and guaranteed by FNMA, GNMA and FHLMC which significantly decreases credit risk. The most important credit quality factor we consider to understand the condition of the residential agency mortgage-backed securities is that all are AAA rated and guaranteed.

Liquidity Management We manage our liquidity to ensure that our funding needs are met both promptly and in a cost-effective manner. Asset liquidity arises from liquid assets that can be sold or pledged as collateral, amortization, prepayment or maturity of assets and from our ability to sell loans. Liability liquidity results from our ability to maintain a diverse set of funding sources to promptly meet funding requirements.

TCF Bank had $207.0 million of net liquidity qualifying interest-bearing deposits at the Federal Reserve Bank at March 31, 2020, compared with $489.7 million at December 31, 2019. Certain investment securities held-to-maturity and investment securities carried at fair value provide the ability to liquidate or pledge unencumbered securities as needed. At March 31, 2020, $1.2 billion of our securities were pledged as collateral to secure certain deposits and borrowings.

TCF Financial had net liquidity qualifying cash of $210.6 million at March 31, 2020, compared with $156.0 million at December 31, 2019.

Deposits are the primary source of our funds for use in lending and for other general business purposes. In addition to deposits, we receive funds from loan and lease repayments, loan sales and borrowings. Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, net deposit outflows or to fund balance sheet growth. We primarily borrow from the Federal Home Loan Bank (the "FHLB") of Des Moines. We had $1.5 billion of additional borrowing capacity at the FHLB of Des Moines at March 31, 2020, as well as access to the Federal Reserve Discount Window. In addition, we maintain a diversified set of unsecured and uncommitted funding sources, including access to overnight federal funds purchased lines, brokered deposits and capital markets. Lending activities, such as loan originations, loan purchases and equipment purchases for lease financing are the primary uses of our funds.

On March 9, 2020, TCF Financial amended its $50.0 million unsecured 364-day revolving credit facility with an unaffiliated bank to expand borrowing capacity to $150.0 million. The revolving credit facility contains several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on levels of indebtedness. At March 31, 2020, TCF had an outstanding balance of $80.0 million under the revolving credit facility. The revolving credit facility is available to be used, as needed, to fund growth, common stock repurchases or other general corporate purposes. We were in compliance with all the covenants at March 31, 2020.

Our wholly-owned subsidiary, TCF Commercial Finance Canada, Inc. ("TCFCFC"), maintains a $20.0 million Canadian dollar-denominated line of credit facility with an unaffiliated bank, which is guaranteed by TCF Bank. TCFCFC had no (USD) outstanding under the line of credit with the counterparty at March 31, 2020 and at December 31, 2019.

Deposits Deposits were $35.8 billion at March 31, 2020, an increase of $1.3 billion, compared to $34.5 billion at December 31, 2019. The increase in deposits was primarily due to increases in money market deposits of $535.2 million, interest-bearing checking account balances of $322.9 million, noninterest-bearing deposits of $267.3 million and savings account balances of $197.8 million, reflecting seasonal increases in addition to lower consumer spending.

Noninterest-bearing checking accounts represented 22.9% of total deposits at March 31, 2020, compared with 23.1% of total deposits at December 31, 2019. Our weighted-average interest rate for deposits, including noninterest-bearing deposits, was 0.78% for the three months ended March 31, 2020, compared with 0.81% for the same period in 2019.



74




Certificates of deposit including Certificate of Deposit Account Registry Service ("CDARS") deposits, IRA deposits and brokered deposits, were $7.5 billion at both March 31, 2020 and December 31, 2019. The maturities of certificates of deposit with denominations equal to or greater than $100,000 at March 31, 2020 were as follows:
(In thousands)
 
Three months or less
$
1,417,184

Over three through six months
701,535

Over six through 12 months
1,145,576

Over 12 months
591,404

Total
$
3,855,699


Borrowings Borrowings were $6.1 billion at March 31, 2020, compared with $5.0 billion at December 31, 2019. The increase in borrowings was primarily due to an increase in short-term FHLB borrowings. In addition, on March 9, 2020, TCF Financial amended its $50.0 million unsecured 364-day revolving credit facility with an unaffiliated bank to expand borrowing capacity to $150.0 million and had drawn $80.0 million as of March 31, 2020.

Information regarding short-term borrowings (borrowings with an original maturity of less than one year) was as follows:
 
At or For the Three Months Ended March 31,
(Dollars in thousands)
2020
 
2019
FHLB advances
 
 
 
Maximum outstanding at any month-end
$
3,200,000

 
$
350,000

Balance outstanding at end of period
3,200,000

 
350,000

Weighted average interest rate at end of period
0.61
%
 
2.66
%
Average balance outstanding
$
2,467,583

 
$
288,890

Weighted average interest rate
1.63
%
 
2.67
%
Federal funds purchased
 
 
 
Maximum outstanding at any month-end
$

 
$

Balance outstanding at end of period

 

Weighted average interest rate at end of period
%
 
%
Average balance outstanding
$
231

 
$
344

Weighted average interest rate
1.78
%
 
2.66
%
Collateralized Deposits
 
 
 
Maximum outstanding at any month-end
$
218,163

 
$

Balance outstanding at end of period
202,535

 

Weighted average interest rate at end of period
0.64
%
 
%
Average balance outstanding
$
208,316

 
$
2,778

Weighted average interest rate
0.56
%
 
2.66
%
Line-of-credit: TCF Financial Corporation
 
 
 
Maximum outstanding at any month-end
80,000

 

Balance outstanding at end of period
80,000

 

Weighted average interest rate at end of period
2.64
%
 
%
Average balance outstanding
12,527

 

Weighted average interest rate
3.89
%
 
%
Line-of-credit: TCF Commercial Finance Canada, Inc.
 
 
 
Maximum outstanding at any month-end
$
747

 
$
9,905

Balance outstanding at end of period

 
5,992

Weighted average interest rate at end of period
%
 
3.00
%
Average balance outstanding
$
605

 
$
1,487

Weighted average interest rate
2.88
%
 
3.00
%



75




Long-term borrowings were as follows:
(In thousands)
March 31, 2020
 
December 31, 2019
FHLB advances
$
2,071,480

 
$
1,822,058

Subordinated debt obligations
437,504

 
428,470

Discounted lease rentals
88,593

 
100,882

Finance lease obligation
3,017

 
3,038

Total long-term borrowings
$
2,600,594

 
$
2,354,448


On May 1, 2020, TCF Bank priced an offering of $150.0 million of fixed-to-floating rate subordinated notes (the “2030 Notes”), which closed on May 6, 2020 at par. The 2030 Notes, due May 6, 2030, bear an initial interest rate of 5.50% per annum, payable semi-annually in arrears on May 6 and November 6, commencing on November 6, 2020.

See "Note 12 Borrowings" of Notes to Consolidated Financial Statements for further information regarding our long-term borrowings.

Commitments We have commitments that may impact our liquidity. The following schedule summarizes our credit-related commitments and expected expiration dates by period as of March 31, 2020. Although many of these commitments historically have expired without being drawn upon, and therefore, the total amount of these commitments does not necessarily represent future liquidity requirements, changes in macroeconomic conditions and customer liquidity needs could result in greater utilization than we have experienced previously. See "Note 23. Commitments, Contingent Liabilities and Guarantees" of Notes to Consolidated Financial Statements for a further discussion of these obligations.

 
Amount of Commitment - Expiration by Period
(In thousands)
Total
 
Less than
1 year
 
1-3
years
 
3-5
years
 
More than
5 years
Commitments:
 
 
 
 
 
 
 
 
 
Commitments to extend credit:
 
 
 
 
 
 
 
 
 
Commercial
$
5,140,026

 
$
2,373,030

 
$
1,535,695

 
$
998,272

 
$
233,029

Consumer
2,245,645

 
110,483

 
125,117

 
174,330

 
1,835,715

Total commitments to extend credit
7,385,671

 
2,483,513

 
1,660,812

 
1,172,602

 
2,068,744

Standby letters of credit and guarantees on industrial revenue bonds
126,384

 
76,798

 
24,023

 
16,279

 
9,284

Total
$
7,512,055

 
$
2,560,311

 
$
1,684,835

 
$
1,188,881

 
$
2,078,028


Unrecognized tax benefits, projected benefit obligations, demand deposits with indeterminate maturities and discretionary credit facilities that do not obligate us to lend have been excluded from the contractual obligations table above.

Capital Management We are committed to managing capital to maintain protection for shareholders, depositors and creditors. We employ a variety of capital management tools to achieve our capital goals, including, but not limited to, dividends, public offerings of debt and preferred and common stock, common stock repurchases, redemption of preferred stock and the issuance or redemption of subordinated debt and other capital instruments. We maintain a Capital Planning and Dividend Policy which applies to TCF Financial and incorporates TCF Bank's Capital Planning and Dividend Policy. These policies are intended to ensure that capital strategy actions, including the addition of new capital, if needed, common stock repurchases, redemption of preferred stock or the declaration of preferred stock, common stock and bank dividends are prudent, efficient and provide value to our shareholders, while ensuring that past and prospective earnings retention is consistent with our capital needs for growth, as well as asset quality and overall financial condition. TCF Financial and TCF Bank manage capital levels to exceed all regulatory capital requirements.



76




In 2019, our Board of Directors approved an authorization to repurchase up to $150 million of our common stock. The repurchase program has no expiration, and permits shares to be repurchased in compliance with Rule 10b-18 of the Exchange Act, through one or more broker-dealers as part of “block purchases” made by TCF, and/or through privately negotiated purchases, accelerated stock repurchase agreements, or Rule 10b5-1 plans at our discretion. During the three months ended March 31, 2020, we repurchased 873,376 shares of our common stock totaling $33.1 million. In response to the COVID-19 pandemic, TCF temporarily suspended buybacks under its share repurchase program, but retains the ability to resume repurchases as circumstances warrant.

Effective January 1, 2020, the Corporation adopted CECL. Consistent with the treatment of the ACL under the capital rule’s standardized approach, the ACL (excluding PCD loans) and reserve for unfunded credit commitments are eligible for inclusion in TCF’s Tier 2 capital up to 1.25 percent of standardized total risk weighted assets. In response to the COVID-19 pandemic, the regulatory agencies published an interim final rule on March 31, 2020 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 March 31, 2020 interim final rule.

At March 31, 2020 and December 31, 2019, TCF Bank's capital ratios exceeded the quantitative capital ratios required for an institution to be considered "well-capitalized." Significant factors that may affect capital adequacy include, but are not limited to, economic uncertainty, deteriorating economic conditions, a disproportionate growth in assets versus capital and a change in mix or credit quality of assets. There are no conditions or events since March 31, 2020 that management believes have changed TCF Bank's status as well-capitalized.

Equity Total equity was $5.7 billion, or 11.6% of total assets, at March 31, 2020, compared with $5.7 billion, or 12.3% of total assets, at December 31, 2019.

Other Other, comprised of shares held in trust for deferred compensation plans, was $28.1 million at March 31, 2020, compared with $28.0 million at December 31, 2019.

Common Stock Dividends Dividends to common shareholders on a per share basis were $0.35 for both the three months ended March 31, 2020 and December 31, 2019. Dividends to common shareholders on a per share basis, adjusted to reflect the Merger Exchange Ratio, were $0.30 for the three months ended March 31, 2019. Our common stock dividend payout ratio was 109.4% for the three months ended March 31, 2020, compared with 48.6% for the three months ended December 31, 2019 and 35.6% for the three months ended March 31, 2019. TCF Financial's primary funding sources for dividends are dividends received from TCF Bank.

On April 27, 2020, our Board of Directors declared a regular quarterly cash dividend of $0.35 per common share payable on June 1, 2020 to shareholders of record at the close of business on May 15, 2020, and declared a quarterly cash dividend of $0.35625 per depositary share representing a 1/1,000th interest in a share of the 5.70% Series C Non-Cumulative Perpetual Preferred Stock, payable on June 1, 2020 to shareholders of record at the close of business on May 15, 2020.

Common Shareholders' Equity Total common shareholders' equity was $5.5 billion, or 11.23% of total assets, at March 31, 2020, compared with $5.5 billion, or 11.87%, at December 31, 2019. Tangible common equity was $4.0 billion, or 8.45% of total tangible assets, at March 31, 2020, compared with $4.1 billion, or 9.01% of total tangible assets, at December 31, 2019. Book value per common share was $35.85 at March 31, 2020, compared with $36.20 at December 31, 2019. Tangible book value per common share was $26.16 at March 31, 2020, compared with $26.60 at December 31, 2019. Tangible common equity and tangible book value are non-GAAP measures that exclude goodwill and other intangible assets See "Consolidated Financial Condition Analysis — Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.



77




Non-GAAP Financial Measures

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include our tangible book value per common share; tangible common shareholders' equity; presentation of net interest income and net interest margin on a fully tax-equivalent ("FTE") basis; our adjusted efficiency ratio (which excludes merger-related expenses, expenses associated with the our sale of the Legacy TCF auto finance portfolio, write-down of company-owned vacant land parcels and branch exit costs, pension fair valuation adjustment, loan servicing rights impairment (recovery), lease financing equipment depreciation, net interest income FTE adjustment, amortization of intangible assets, and impairment of federal historic tax credits); and other adjusted information presented excluding merger-related expenses and notable items (defined as expenses associated with the sale of the Legacy TCF auto finance portfolio, write-down of company-owned vacant land parcels and branch exit costs, pension fair valuation adjustment and loan servicing rights impairment (recovery)) including net income, diluted earnings per share, return on average assets, return on average common shareholders' equity, return on average tangible common shareholders' equity tangible book value per common share and tangible common equity to tangible assets. Management believes that the presentation of these non-GAAP financial measures (i) provides important supplemental information that contributes to a proper understanding of our operating performance, (ii) enables a more complete understanding of factors and trends affecting our business and (iii) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP financial measures internally in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. Non-GAAP financial measures are not defined by GAAP and other entities may calculate them differently than we do. Non-GAAP financial measures have inherent limitations and are not required to be uniformly applied. Although non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

The following tables provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. A reconciliation of net interest income and net interest margin (FTE) to the most directly comparable GAAP financial measure can be found within the Net Interest Income subheading of this report.


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The computation of the adjusted diluted earnings per common share was as follows:
 
 
Three Months Ended
(Dollars in thousands, except per share data)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Net income available to common shareholders
 
$
49,406

 
$
109,905

 
$
68,001

Earnings allocated to participating securities
 

 

 
(13
)
Earnings allocated to common shareholders
(a)
49,406

 
109,905

 
67,988

Merger-related expenses
 
36,728

 
47,025

 
9,458

Notable items:
 
 
 
 
 
 
Sale of legacy TCF auto finance portfolio and related expenses(1)
 
3,063

 
12,864

 

Write-down of company-owned vacant land parcels and branch exit costs(2)
 

 
3,494

 

Pension fair valuation adjustment(2)
 

 
6,341

 

Loan servicing rights impairment (recovery)(3)
 
8,236

 
(638
)
 

Total notable items
 
11,299

 
22,061

 

Related income tax expense, net of benefits(4)
 
(10,071
)
 
(19,904
)
 
(2,252
)
Total adjustments, net of tax
 
37,956

 
49,182

 
7,206

Adjusted earnings allocated to common stock
(b)
$
87,362

 
$
159,087

 
$
75,194

 
 
 
 
 
 
 
Weighted-average common shares outstanding used in diluted earnings per common share calculation(5)
(c)
152,114,017

 
152,658,766

 
82,245,577

 
 
 
 
 
 
 
Diluted earnings per common share
(a) / (c)
$
0.32

 
$
0.72

 
$
0.83

Adjusted diluted earnings per common share
(b) / (c)
0.57

 
1.04

 
0.91

 
 
 
 
 
 
 
Net income attributable to TCF
 
$
51,899

 
$
112,399

 
$
70,494

Total adjustments, net of tax
 
37,956

 
49,182

 
7,206

Adjusted net income attributable to TCF
 
$
89,855

 
$
161,581

 
$
77,700

(1)
Three months ended March 31, 2020 amount included within occupancy and equipment ($1.6 million), compensation and employee benefits ($0.9 million) and other noninterest expense ($0.6 million). Three months ended December 31, 2019 amount included within net gains (losses) on sales of loans and leases ($8.2 million), other noninterest expense ($2.2 million), occupancy and equipment ($1.5 million) and compensation and employee benefits ($0.9 million).
(2)
Included within Other noninterest expense.
(3)
Included within Other noninterest income.
(4)
Included within Income tax expense.
(5)
Assumes conversion of common shares, as applicable.

The computation of the adjusted net interest income and margin was as follows:
 
Three Months Ended
(Dollars in thousands, except per share data)
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Net Interest Income
$
401,481

 
$
408,753

 
$
254,429

Purchase accounting accretion and amortization
(25,258
)
 
(30,523
)
 

Net interest income, excluding purchase accounting accretion and amortization
$
376,223

 
$
378,230

 
$
254,429

Net interest margin (FTE)
3.76
 %
 
3.89
 %
 
4.61
%
Purchase accounting accretion and amortization
(0.23
)
 
(0.29
)
 

Net interest margin, excluding purchase accounting accretion and amortization (FTE)
3.53
 %
 
3.60
 %
 
4.61
%



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The computation of the adjusted return on average assets, common equity and average tangible common equity was as follows:
 
 
Three Months Ended
(Dollars in thousands)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Adjusted net income after tax expense:
 
 
 
 
 
 
Income after tax expense
(a)
$
53,816

 
$
114,456

 
$
73,449

Merger-related expenses
 
36,728

 
47,025

 
9,458

Notable items
 
11,299

 
22,061

 

Related income tax expense, net of tax benefits
 
(10,071
)
 
(19,904
)
 
(2,252
)
Adjusted net income after tax expense for ROAA calculation
(b)
$
91,772

 
$
163,638

 
$
80,655

Net income available to common shareholders
(c)
$
49,406

 
$
109,905

 
$
68,001

Other intangibles amortization
 
5,480

 
5,505

 
812

Related income tax expense
 
(1,149
)
 
(1,284
)
 
(193
)
Net income available to common shareholders used in ROATCE calculation
(d)
$
53,737

 
$
114,126

 
$
68,620

 
 
 
 
 
 
 
Adjusted net income available to common shareholders:
 
 
 
 
 
 
Net income available to common shareholders
 
$
49,406

 
$
109,905

 
$
68,001

Notable items
 
11,299

 
22,061

 

Merger-related expenses
 
36,728

 
47,025

 
9,458

Related income tax expense, net of tax benefits
 
(10,071
)
 
(19,904
)
 
(2,252
)
Net income available to common shareholders used in adjusted ROACE calculation
(e)
87,362

 
159,087

 
75,207

Other intangibles amortization
 
5,480

 
5,505

 
812

Related income tax expense
 
(1,149
)
 
(1,284
)
 
(193
)
Net income available to common shareholders used in adjusted ROATCE calculation
(f)
$
91,693

 
$
163,308

 
$
75,826

Average balances:
 
 
 
 
 
 
Average assets
(g)
$
46,985,426

 
$
46,119,514

 
$
24,106,941

Total average equity
 
$
5,630,487

 
$
5,691,119

 
$
2,579,250

Non-controlling interest in subsidiaries
 
(25,328
)
 
(23,683
)
 
(24,521
)
Total TCF Financial Corporation shareholders' equity
 
5,605,159

 
5,667,436

 
2,554,729

Preferred stock
 
(169,302
)
 
(169,302
)
 
(169,302
)
Average total common shareholders' equity used in ROACE calculation
(h)
$
5,435,857

 
$
5,498,134

 
$
2,385,427

Average goodwill, net
 
(1,301,080
)
 
(1,266,166
)
 
(154,757
)
Average other intangibles, net
 
(166,298
)
 
(211,294
)
 
(20,080
)
Average tangible common shareholders' equity used in ROATCE calculation
(i)
$
3,968,479

 
$
4,020,674

 
$
2,210,590

 
 
 
 
 
 
 
ROAA(1)
(a) / (g)
0.46
%
 
0.99
%
 
1.22
%
Adjusted ROAA(1)
(b) / (g)
0.78

 
1.42

 
1.34

ROACE(1)
(c) / (h)
3.64

 
8.00

 
11.40

Adjusted ROACE(1)
(e) / (h)
6.43

 
11.57

 
12.61

ROATCE(1)
(d) / (i)
5.42

 
11.35

 
12.42

Adjusted ROATCE(1)
(f) / (i)
9.24

 
16.25

 
13.72

(1)
Annualized.



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The computation of the adjusted efficiency ratio, noninterest income and noninterest expense was as follows:
 
 
Three Months Ended
(Dollars in thousands)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Noninterest expense
(a)
$
374,599

 
$
416,571

 
$
253,075

Merger-related expenses
 
(36,728
)
 
(47,025
)
 
(9,458
)
Write-down of company-owned vacant land parcels and branch exit costs
 

 
(3,494
)
 

Expenses related to the sale of Legacy TCF auto finance portfolio
 
(3,063
)
 
(4,670
)
 

Pension fair valuation adjustment
 

 
(6,341
)
 

Adjusted noninterest expense
 
$
334,808

 
$
355,041

 
$
243,617

Lease financing equipment depreciation
 
(18,450
)
 
(18,629
)
 
(19,256
)
Amortization of intangibles
 
(5,480
)
 
(5,505
)
 
(812
)
Impairment of federal historic tax credits
 
(1,521
)
 
(4,030
)
 

Adjusted noninterest expense, efficiency ratio
(b)
$
309,357

 
$
326,877

 
$
223,549

 
 
 
 
 
 
 
Net interest income
 
$
401,481

 
$
408,753

 
$
254,429

Noninterest income
 
136,963

 
158,052

 
103,504

Total revenue
(c)
$
538,444

 
566,805

 
$
357,933

 
 
 
 
 
 
 
Noninterest income
 
$
136,963

 
$
158,052

 
$
103,504

Sale of legacy TCF auto finance portfolio
 

 
8,194

 

Loan servicing rights impairment (recovery)
 
8,236

 
(638
)
 

Adjusted noninterest income
 
145,199

 
165,608

 
103,504

Net interest income
 
401,481

 
408,753

 
254,429

Net interest income FTE adjustment
 
2,983

 
2,896

 
1,722

Adjusted net interest income
 
404,464

 
411,649

 
256,151

Lease financing equipment depreciation
 
(18,450
)
 
(18,629
)
 
(19,256
)
Adjusted total revenue, efficiency ratio
(d)
$
531,213

 
$
558,628

 
$
340,399

 
 
 
 
 
 
 
Efficiency ratio
(a) / (c)
69.57
%
 
73.49
%
 
70.70
%
Adjusted efficiency ratio
(b) / (d)
58.24

 
58.51

 
65.67



81





The computations of tangible common equity to tangible assets and tangible book value per common share were as follows:
(Dollars in thousands, except per share data)
 
At March 31, 2020
 
At December 31, 2019
Total equity
 
$
5,655,833

 
$
5,727,241

Non-controlling interest in subsidiaries
 
(30,149
)
 
(20,226
)
Total TCF Financial Corporation shareholders' equity
 
5,625,684

 
5,707,015

Preferred stock
 
(169,302
)
 
(169,302
)
Total common shareholders' equity
(a)
5,456,382

 
5,537,713

Goodwill, net
 
(1,313,046
)
 
(1,299,878
)
Other intangibles, net
 
(162,887
)
 
(168,368
)
Tangible common shareholders' equity
(b)
$
3,980,449

 
$
4,069,467

 
 
 
 
 
Total assets
(c)
$
48,594,383

 
$
46,651,553

Goodwill, net
 
(1,313,046
)
 
(1,299,878
)
Other intangibles, net
 
(162,887
)
 
(168,368
)
Tangible assets
(d)
$
47,118,450

 
$
45,183,307

 
 
 
 
 
Common stock shares outstanding
(e)
152,185,984

 
152,965,571

 
 
 
 
 
Common equity to assets
(a) / (c)
11.23
%
 
11.87
%
Tangible common equity to tangible assets
(b) / (d)
8.45

 
9.01

 
 
 
 
 
Book value per common share
(a) / (e)
$
35.85

 
$
36.20

Tangible book value per common share
(b) / (e)
26.16

 
26.60


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our results of operations depend, to a large degree, on our net interest income and our ability to manage interest rate risk. Although we manage other risks in the normal course of business, such as credit risk, liquidity risk and foreign currency risk, we consider interest rate risk to be one of our more significant market risks.

Interest Rate Risk

Our ALCO and Finance Committee of our Board of Directors have established interest rate risk policy limits. Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest earning assets, deposits and borrowings) to movements in interest rates. The major sources of our interest rate risk are timing differences in the maturity and repricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in consumer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of simulation and valuation analyses. The interest rate scenarios may include gradual or rapid changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about consumer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest rate risk. We, like most financial institutions, has material interest rate risk exposure to changes in both short- and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or London Interbank Offered Rate).

Our ALCO is responsible for reviewing our interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. ALCO manages our interest rate risk based on interest rate expectations and other factors. The principal objective in managing our assets and liabilities is to provide maximum levels of net interest income and facilitate our funding needs, while maintaining acceptable levels of interest rate risk and liquidity risk.
 
ALCO primarily uses two interest rate risk tools with policy limits to evaluate our interest rate risk: net interest income simulation and economic value of equity ("EVE") analysis.



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Management utilizes net interest income simulation models to estimate the near-term effects of changing interest rates on our net interest income. Net interest income simulation involves forecasting net interest income under a variety of scenarios, including the level of interest rates, the shape of the yield curve and the spreads between market interest rates. Management exercises best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit repricings and events outside management's control, including consumer behavior on loan and deposit activity and the effect that competition has on both loan and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions, consumer behavior and management strategies, among other factors. We perform various sensitivity analyses on new loan spreads, prepayment rates, basis risk and deposit assumptions.

The following table presents changes in our net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate change. These projections were based on our assets and liabilities remaining static over the next twelve months and factored into the simulation model. Given the current rate environment, TCF’s margin would likely show modest expansion if rates increase. Conversely, we have risk to rates decreasing and/or the yield curve flattening. It is likely in these scenarios that margin would be compressed. Risk to lower rates depends on future monetary policy at the zero-lower bound, customer and competitor behavior.
 
Impact on Net Interest Income
(Dollars in millions)
March 31, 2020
Immediate change in interest rates:
 
 
+200 basis points
$
32,200

2.2
%
+100 basis points
18,700

1.3


Management also uses EVE to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Net interest income simulation highlights exposure over a relatively short time period, while EVE analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows. EVE analysis addresses only the current balance sheet and does not incorporate the planned changes to interest-earning assets. As with the net interest income simulation model, EVE analysis is based on key assumptions about the timing and variability of balance sheet cash flows and does not take into account any potential responses by management to anticipated changes in interest rates.

LIBOR Transition

In 2017, the U.K. Financial Conduct Authority (the “FCA”) noted that market conditions raised serious questions about the future sustainability of LIBOR benchmarks. Many financial products, including mortgages and other consumer loans, commercial loans, corporate loans, various types of debt, derivatives and other securities, reference LIBOR to determine their applicable interest rate. The expected cessation of publication of LIBOR will impact the mechanics of floating rate financial instruments and contracts that reference LIBOR and mature after 2021. Certain of these financial products do not provide for alternative reference rates, and those that do may differ from the prior benchmark rates. The FCA subsequently announced that it had secured voluntary panel bank support of LIBOR through only 2021. As a result, central banks and regulators have convened working groups to find a suitable replacement index for LIBOR, and TCF is working to identify, assess and monitor risks associated with the expected discontinuation or unavailability of LIBOR, achieve operational readiness and engage impacted customers in connection with the transition.

Item 4. Controls and Procedures.
 
Disclosure Controls and Procedures TCF Financial carried out an evaluation, under the supervision and with the participation of TCF Financial's management, including its Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), of the effectiveness of the design and operation of TCF Financial's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, TCF’s Principal Executive Officer and Principal Financial Officer concluded that TCF's disclosure controls and procedures were effective as of March 31, 2020.



83




Any system of disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system inherently has limitations and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Therefore, no assessment of a cost-effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by TCF Financial in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to TCF Financial's management, including the Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), as appropriate, to allow for timely decisions regarding required disclosure. TCF Financial's disclosure controls also include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and that transactions are properly recorded and reported.

Changes in Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for TCF Financial. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of TCF Financial; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of TCF Financial are only being made in accordance with authorizations of management and directors of TCF Financial; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of TCF Financial’s assets that could have a material effect on the financial statements.

While we have incorporated certain new controls related to our final adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments into our existing internal control environment, there was no change in internal control over financial reporting (as a defined rule in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.



84




Part II - Other Information                                                

Item 1. Legal Proceedings.
 
From time to time, we are a party to legal proceedings arising out of our lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of our lending and leasing collections activities. We may also be subject to regulatory examinations and enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB which may impose sanctions on us for failures related to regulatory compliance. From time to time borrowers and other customers, and employees and former employees have also brought actions against us, in some cases claiming substantial damages. We, like other financial services companies are subject to the risk of class action litigation. Litigation is often unpredictable and the actual results of litigation cannot be determined and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established. Based on our current understanding of our pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on our consolidated financial position, operating results or cash flows.

Item 1A. Risk Factors.
 
In addition to the risks detailed below, additional information concerning risk factors facing the Corporation is contained in this report under the heading "Forward-Looking Statements" and in Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2019. TCF's business, financial condition or results of operations could be materially adversely affected by any of these risks.

We face risks and uncertainties related to the outbreak of COVID-19

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. Shortly thereafter, the President of the United States declared a National Emergency throughout the United States attributable to such outbreak. The outbreak has become increasingly widespread in the United States, including in the markets in which we operate. We are currently taking steps to assess the effects, and mitigate the adverse consequences to our businesses, of the outbreak; though the magnitude of the impact remains to be seen, our businesses will be adversely impacted by the outbreak of COVID-19.

As previously disclosed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, our operations and profitability are impacted by business and economic conditions generally, as well as those in the primary banking markets in which we operate. The COVID-19 pandemic has resulted in historic job losses and decreases in economic activity. While the duration and full extent of job losses and magnitude of economic dislocation are not yet known, it is clear that they may impact the ability of individuals and small businesses to make payments, value of underlying collateral and the ability of guarantors to make payments in the case of default, which may decrease consumer demand for our products and services, reduce our ability to access capital, and otherwise adversely impact the financial condition, results of operations, prospects of our businesses and our credit ratings. While the United States and various state and local governments have implemented various programs designed to aid individuals and businesses, the impact of, and extent to which, these efforts will be successful cannot be determined at this time.  

Specifically, many of our customers and counterparties have been and may continue to be adversely impacted by the COVID-19 pandemic and resulting economic downturn. As a result, we have faced and may continue to face a decrease in demand for certain products, reduced access to our branches by our customers, and disruptions in the operations of our vendors. The pandemic could also result in the recognition of additional credit losses in our loan and lease portfolios and increase our allowance for credit losses as both businesses and consumers are negatively impacted by the economic downturn. Additionally, customers that are increasingly forced to work remotely and may not have appropriately secured remote networks may be more vulnerable to cyber-attacks or phishing schemes. Any of these occurrences could have a material adverse effect on our financial condition, results of operations and prospects. The extent to which the pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning its severity and the actions necessary to contain it or address its impact, among others. The duration of these impacts resulting from the COVID-19 is unknown, and the resulting customer behavioral changes are not fully known and may not be temporary.



85




In addition, the COVID-19 outbreak has caused, and will continue to cause, substantial disruption to our employees as a result of illness, increased family responsibilities, self-isolation, travel limitations, and otherwise. Most areas within the United States have imposed mandatory closures for businesses not deemed to be essential, and it is currently unclear for how long such closures will last. Although nearly all of our corporate employees are able to work remotely, closures have nevertheless caused us to reduce access to our branches, and affected many of our customers and many businesses through which we sell our products and services. In addition, the increased reliance on remote work may result in increased vulnerabilities through heavy dependence on remote networks.

Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently known, could materially impact our team members and decrease our ability to serve customers, increase our costs, negatively impact our sales and damage our results of operations and our liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share repurchase activity for the three months ended March 31, 2020 was as follows:
Period
Total Number
of Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plan
 
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the Plan
January 1 to January 31, 2020
 

 
 

 
 

 
 

Share repurchase program(1)
22,244

 
$
42.51

 
22,244

 
$
121,559,856

Employee transactions(2)
47,890

 
46.80

 
N.A.

 
N.A.

February 1 to February 28, 2020
 

 
 

 
 

 
 

Share repurchase program(1)
459,649

 
$
40.41

 
459,649

 
$
102,983,806

Employee transactions(2)
1,250

 
38.64

 
N.A.

 
N.A.

March 1 to March 31, 2020
 

 
 

 
 

 
 

Share repurchase program(1)
391,483

 
$
34.65

 
391,483

 
$
89,419,941

Employee transactions(2)

 

 
N.A.

 
N.A.

Total
 

 
 

 
 

 
 

Share repurchase program(1)
873,376

 
$
37.88

 
873,376

 
$
89,419,941

Employee transactions(2)
49,140

 
46.59

 
N.A.

 
N.A.

 N.A. Not Applicable
(1)
On October 24, 2019, the Board of Directors approved an authorization to repurchase up to $150.0 million of our common stock. Repurchases will be based on market conditions, the trading price of our shares and other factors. The ability to repurchase shares in the future may be adversely affected by new legislation or regulations or by changes in regulatory policies.
(2)
Represents restricted stock withheld pursuant to the terms of awards granted under the Legacy TCF Financial Omnibus Incentive Plan to offset tax withholding obligations that occur upon vesting and release of restricted stock. The plan provides that the value of shares withheld shall be the average of the high and low prices of common stock of TCF Financial Corporation on the date the relevant transaction occurs.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.
 
Not applicable.




86




Item 5. Other Information.

The following information is being filed herewith in lieu of filing such information on a Current Report on Form 8-K under Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers:

On May 8th, 2020, TCF Financial Corporation (“TCF” or the “Company”) announced that the employment of David T. Provost, Executive Vice Chairman of TCF ended effective as of May 8, 2020. Mr. Provost remains Vice Chairman of TCF’s Board of Directors. Mr. Provost resigned from the board of directors of TCF National Bank, the wholly-owned banking subsidiary of TCF, and all subsidiaries thereof, effective as of May 8, 2020.

Pursuant to the terms of the Separation and Release Agreement (the “Release”) entered into between TCF and Mr. Provost on May 8, 2020, Mr. Provost will receive severance compensation as provided for in the case of a termination without cause pursuant to the terms of the Amended and Restated Retention Agreement (the “Retention Agreement”) entered into between Mr. Provost and TCF as of March 10, 2020; provided that in addition to the amounts provided for under Section 6(b)(i)(A) of the Retention Agreement, Mr. Provost shall also receive the sum of $8,600,000 payable in a lump sum subject to expiration of the rescission period set forth in the Release.

Mr. Provost’s right to receive the benefits described above and in the Retention Agreement are conditioned upon his compliance with the Retention Agreement, including, without limitation, non-competition and non-solicitation provisions thereof and Mr. Provost not rescinding his entry into the Release. The description of the Retention Agreement with Mr. Provost and compensation provided for thereunder contained in the Company’s Current Report on Form 8-K filed on March 16, 2020 is incorporated herein by reference and, other than as provided herein, remains unchanged.

A copy of the Separation and Release Agreement entered into with Mr. Provost is filed as Exhibit 10(k) to this Quarterly Report on Form 10-Q.



87




Item 6. Exhibits.  
Exhibit
Number
 
Description
3(a)
 
3(b)
 
3(c)
 
4(a)
 
10(a)*
 
10(b)*
 
10(c)
 
10(d)#
 
10(e)#
 
10(f)#
 
10(g)#
 
10(h)
 
10(i)#
 
10(j)#
 
10(k)#
 
31.1#
 
31.2#
 
32.1#
 
32.2#
 
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH#
 
XBRL Taxonomy Extension Schema Document
101.CAL#
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#
 
XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB#
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE#
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
* Executive Contract
#  Filed herein



88




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
TCF FINANCIAL CORPORATION
 
 
 
 
 
 
 
 
/s/ Craig R. Dahl
 
 
Craig R. Dahl,
 
 
Chief Executive Officer and President
 
 
(Principal Executive Officer)
 
 
 
 
 
/s/ Dennis L. Klaeser
 
 
Dennis L. Klaeser,
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
 
 
/s/ Kathleen S. Wendt
 
 
Kathleen S. Wendt,
 
 
Executive Vice President and Chief Accounting Officer
 
 
(Principal Accounting Officer)
 

Dated: May 8, 2020



89


Exhibit 10(d)
TCF FINANCIAL CORPORATION
___________

<NAME>
<###> Units

RESTRICTED STOCK UNIT AGREEMENT
PURSUANT TO THE
STOCK INCENTIVE PLAN OF 2019
Time-Based Restricted Stock Units
_________________________
This Time-Based Restricted Stock Unit Agreement (this “Agreement”) is made as of [GRANT DATE] (“Grant Date”), between TCF FINANCIAL CORPORATION, a Michigan corporation, (the “Corporation”), and the Grantee named above (“Grantee”).
The Stock Incentive Plan of 2019 (the “Plan”) is administered by the Compensation and Pension Committee of the Corporation’s Board of Directors (“Committee”). The Committee has determined that Grantee is eligible to participate in the Plan and has awarded time-based restricted stock units (“TRSUs”) to Grantee, subject to the terms and conditions set forth in this Agreement and the Plan.
Grantee acknowledges receipt of a copy of the Plan and the Information Statement describing the Plan, and accepts this TRSU award subject to all of the terms, conditions, and provisions of this Agreement and the Plan.
1.Award. The Corporation hereby awards to Grantee <###> TRSUs, subject to the restrictions imposed under this Agreement and the Plan. Each TRSU is initially equal to one share of the Corporation’s common stock, $1.00 par value (“Common Stock”), and is convertible into one share of Common Stock, subject to vesting as set forth below.

2.Transferability. Until the TRSUs vest in accordance with this Agreement and shares of Common Stock are delivered in settlement thereof, interests in TRSUs under this Agreement are generally not transferable by Grantee, except by will or according to the laws of descent and distribution. All rights with respect to the TRSUs granted hereunder are exercisable during Grantee’s lifetime only by Grantee, Grantee’s guardian or legal representative.

3.Vesting. Except as otherwise provided in this Agreement, TRSUs granted hereunder shall vest based on Grantee’s continued employment with the Corporation or its Subsidiaries and the vesting schedule attached as Exhibit A. The periods during which TRSUs are unvested are “Restricted Period(s).” The Restricted Period(s) shall lapse upon the date or dates identified in Exhibit A. TRSUs are unvested under the Plan and this Agreement until the end of the applicable Restricted Period. Unless specified otherwise below, TRSUs shall be settled within 30 days following satisfaction of the applicable vesting requirements as set forth below.

4.Termination of Employment. If, during the Restricted Period, Grantee’s employment with the Corporation or any of its Subsidiaries is terminated by the Corporation without Cause (except as provided in Section 11.1 during the two-year period following a Change in Control), or





if Grantee terminates employment due to death, or Disability, then the remaining restrictions on Grantee’s unvested TRSUs shall lapse and such award shall vest on a prorated basis and be convertible into a number of shares of Common Stock equal to (a) the number of Grantee’s unvested TRSUs as of the effective date of the termination, multiplied by (b) the quotient of (x) the number of full months that had elapsed since the most recent annual vesting date and the effective date of Grantee’s termination and (y) the total number of full months remaining in the vesting period since the most recent annual vesting date, which shall be settled within 30 days following the date of Grantee’s termination of employment, subject to any required delay pursuant to Section 14 below. If Grantee terminates employment on or after attainment of age 55 with 10 years of service, having submitted written notice to the Corporation of his or her intended Retirement date at least one year in advance of such Retirement, then following such employment termination, the remaining restrictions on Grantee’s unvested TRSUs shall lapse and such award shall vest on a prorated basis and be convertible into a number of shares of Common Stock equal to (a) the number of Grantee’s unvested TRSUs as of the effective date of the termination, multiplied by (b) the quotient of (x) the number of full months that had elapsed since the most recent annual vesting date and the effective date of Grantee’s termination and (y) the total number of full months remaining in the vesting period since the most recent annual vesting date, which shall be settled within 30 days following the date of Grantee’s termination of employment, subject to any required delay pursuant to Section 14 below. If Grantee does not provide the Corporation with written notice one year in advance of his or her intended Retirement date, then all TRSUs still subject to restrictions on Grantee’s Retirement date automatically shall be forfeited. Except to the extent provided herein, any unvested TRSUs shall be forfeited upon Grantee’s employment termination by the Corporation for Cause, or upon Grantee’s voluntary termination of employment.

5.Employment by the Corporation. The award of TRSUs under this Agreement shall not impose upon the Corporation or any Subsidiary any obligation to retain Grantee in its employment for any given period or upon any specific terms of employment. The Corporation or any Subsidiary may at any time dismiss Grantee from employment, free from any liability or claim under the Plan or this Agreement, unless otherwise expressly provided in any written agreement with Grantee.

6.Shareholder Rights. Any dividends or other distributions declared payable on the Corporation’s Common Stock on or after the grant date of the TRSUs until the TRSUs vest or forfeit shall be credited notionally to the Grantee in an amount equal to such declared dividends or other distributions on an equivalent number of shares of the Corporation’s Common Stock (“Dividend Equivalents”). Dividend Equivalents so credited shall be paid if, and only to the extent that, the TRSUs to which they relate vest, as provided under the terms of the Plan and this Agreement. Dividend Equivalents credited in respect to TRSUs that are forfeited under the terms of the Plan and this Agreement, are correspondingly forfeited. No interest or other earnings shall be credited on Dividend Equivalents. Vested Dividend Equivalents shall be paid in cash at the same time as the TRSUs to which they relate vest and are converted into Common Stock.

7.Legal Compliance. The Corporation shall not be obligated to issue any shares to Grantee, if such issuance would violate any law, order or regulation of any governmental authority.

8.Acknowledgments. Grantee acknowledges that he or she has been furnished with, and has read, the Plan. Grantee agrees not to resell or distribute the shares of Common Stock received upon vesting and settlement of Grantee’s TRSUs in compliance with such conditions as





the Corporation may reasonably require, to ensure compliance with federal and state securities laws and other Corporation policies, including stock ownership guidelines, if applicable.

9.Withholding. The Corporation or one of its Subsidiaries shall be entitled to (a) withhold and deduct from Grantee’s future wages (or from other amounts that may be due and owing to Grantee from the Corporation or a Subsidiary), or make other arrangements for the collection of all legally required amounts necessary to satisfy any and all federal, state, and local income and employment tax withholding requirements attributable to the TRSUs awarded hereunder, including, without limitation, the award of, vesting of, payments of dividends with respect to, or settlement with respect to, the TRSUs; or (b) require Grantee promptly to remit the amount of such withholding to the Corporation or a Subsidiary before delivering shares of Common Stock in settlement of the vested TRSUs. The applicable withholding requirements shall be satisfied by withholding shares of Common Stock from the shares otherwise deliverable in settlement of the vested TRSUs, unless Grantee elects to satisfy the applicable withholding requirements in cash or by using a cash equivalent.

10.Effective Date. This award of TRSUs shall be effective as of the date first set forth above.

11.Change in Control.

11.1Treatment upon a Change in Control. Notwithstanding anything contained in Section 8 of the Plan or any similar provision of a Prior Plan (or the award agreements thereunder), following a Change in Control after the Effective Date, all TRSUs granted to Grantee under this Agreement outstanding at the time of the Change in Control and which have not previously vested shall be administered as set forth herein. If the Corporation is not the surviving entity, all unvested TRSUs shall be converted into TRSUs of the surviving entity’s common stock at the applicable exchange ratio on the date of the Change in Control (or shall be otherwise adjusted as contemplated by the Plan) in a manner approved by the Committee or the Board. The TRSUs shall continue to vest under the vesting schedule in effect immediately prior to the Change in Control. If, during the two-year period following the Change in Control, Grantee’s employment is involuntarily terminated without Cause or Grantee terminates employment for Good Reason, any unvested TRSUs granted under this Agreement shall 100% vest and be converted into shares of Common Stock (or the common stock of the surviving entity, as applicable), with settlement to occur within 30 days following such termination of employment, subject to any required delay pursuant to Section 14 below. Following a Change in Control after the Effective Date, Grantee’s rights in respect of Retirement, death and Disability as set forth in Section 4 with respect to TRSUs granted under this Agreement, including any proration, shall continue to apply to the TRSUs.

12.Definitions. Capitalized terms not defined herein shall be defined as in the Plan or in Grantee’s Individual Agreement (defined below). To the extent any capitalized term not defined herein is defined in both the Plan and Grantee’s Individual Agreement, the definition set forth in Grantee’s Individual Agreement shall control. As used in this Agreement, “Individual Agreement” means (a) any employment, change in control or severance agreement between Grantee and the Corporation or one of its affiliates (or any successor thereto) and (b) any retention agreement between Grantee and the Corporation or one of its affiliates (or any successor thereto) that becomes effective on or following the date hereof.






13.Amendment. This Agreement shall not be modified except in a writing executed by the parties hereto.

14.Section 409A of the Code. This Agreement and the TRSUs granted hereunder are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom, and, with respect to TRSUs that constitute deferred compensation subject to Section 409A of the Code, the Plan and this Agreement as well as any Individual Agreement shall be interpreted and administered in all respects in accordance with Section 409A of the Code (including with respect to the application of any defined terms to TRSUs that constitute nonqualified deferred compensation, which defined terms shall be interpreted to have the meaning required by Section 409A of the Code to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code). Each payment (including the delivery of shares of Common Stock) under the TRSUs that constitutes nonqualified deferred compensation subject to Section 409A of the Code shall be treated as a separate payment for purposes of Section 409A of the Code and, to the extent to be made or delivered upon a termination of employment may only be made upon a “separation from service” under Section 409A of the Code to the extent necessary in order to avoid the imposition of penalty taxes on Grantee pursuant to Section 409A of the Code. In no event may Grantee, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that constitutes nonqualified deferred compensation subject to Section 409A of the Code. Notwithstanding any other provision of this Agreement to the contrary, if Grantee is a “specified employee” within the meaning of Section 409A of the Code (as determined in accordance with the methodology established by the Corporation as in effect on the date of Grantee’s separation from service), TRSUs that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code that would otherwise be deliverable by reason of Grantee’s separation from service during the six-month period immediately following such separation from service shall instead be provided on the earlier to occur of: (a) the date that is six months and one day after Grantee’s separation from service; or (b) the date of Grantee’s death.

15.Conflict Between Plan, Agreement, and Individual Agreements. The Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms of this Agreement, an Individual Agreement and/or the terms of the Plan, the provisions of this Agreement, or, to the extent more favorable, the Individual Agreement shall control; provided, however, that notwithstanding anything in this Agreement to the contrary, any provisions of this Agreement relating to the timing of settlement or payment in respect of the TRSUs shall control in the event of any conflict between this Agreement, the Plan, any Prior Plan and the award agreements thereunder, and any Individual Agreement.

16.Non-Solicitation And Confidentiality Agreement. Grantee acknowledges and agrees that Grantee’s position with the Corporation or any affiliated companies (collectively “TCF Companies”) provides Grantee with access to non-public, confidential information (“Confidential Information”) that is valuable to TCF Companies and/or would be valuable to competitors, including but not limited to, information regarding Customers of the TCF Companies.

As a condition of accepting this Award and in consideration of the opportunity to receive TRSUs, Grantee and the Corporation agree as follows:
16.1 Non-Solicitation.  For the duration of Grantee’s employment with the TCF Companies and for a period of 12 months after Grantee’s employment terminates (for any reason),





Grantee shall not, directly or indirectly (whether for compensation or without compensation): (i) solicit or attempt to solicit employees or independent contractors of TCF Companies with whom Grantee worked or who have skill sets with which Grantee became familiar during Grantee’s employment with TCF Companies, for the purpose of encouraging the employee or independent contractor to terminate his or her employment relationship or contract with TCF Companies to provide competing services on that employee or independent contractor’s own behalf or on behalf of any other person or entity; (ii) solicit or attempt to solicit any Customer for the purpose of providing products or services that are similar to or in competition with products or services of the TCF Companies; (iii) induce or attempt to induce any Customer to not do business with or stop doing business with TCF Companies; or (iv) assist any other person or entity in any of the foregoing. During the period of time, if any, that Grantee resided in the States of California or North Dakota, the above non-solicitation provisions will apply following Grantee’s termination of employment with TCF Companies only in situations where Grantee wrongfully used or disclosed trade secrets (as defined by California or North Dakota law, respectively) of the TCF Companies.

For purposes of this Section, “Customer” means current and prospective: (i) customers, such as borrowers, lessees, or depositors (individuals or entities); (ii) referral or origination sources, such as manufacturers, distributors, brokers, dealers or financial institutions; (iii) capital markets or funding sources; (iv) investors in or purchasers of financial contracts; or (v) manufacturers or distributors providing collateral repurchase or remarketing support, in each case with whom Grantee had Material Contact and/or about whom Grantee obtained Confidential Information during employment with the TCF Companies. For purposes of this Section, “Material Contact” means any interaction between the Customer and Grantee, within the two-year period prior to termination of Grantee’s employment, which took place to promote, manage, service or further the business relationship.

16.2 Confidentiality. During Grantee’s employment with TCF Companies and after Grantee’s termination from employment (for any reason), Grantee shall maintain the confidentiality of all Confidential Information. Other than in the reasonable performance of Grantee’s job duties and in the furtherance of the interests of TCF Companies during Grantee’s employment with the TCF Companies, Grantee will not disclose, publish or use Confidential Information without prior written consent. Upon Grantee’s termination from employment, Grantee will immediately return or securely destroy, as directed, any Confidential Information within Grantee’s possession or control, in any form or format, including electronically-stored information.

Grantee understands that (i) the Agreement is a binding contract, even if the TRSUs awarded in this Agreement never become vested; (ii) the TCF Companies may enforce this Agreement in court and, if this Agreement is violated, seek injunctive relief, monetary damages and other remedies available under applicable law; and (iii) nothing in this Agreement is intended to supersede or eliminate other obligations, including non-solicitation and/or confidentiality obligations, that Grantee may have to TCF Companies during or after Grantee’s employment terminates.
* * *
[Signatures on Next Page]






This TRSU grant has been issued by the Corporation by authority of its Compensation and Pension Committee.

TCF FINANCIAL CORPORATION,
Corporation    
    

_________________________________
By: Craig R. Dahl
Its: President & CEO
                                            



__________________________________
Grantee    
Name:




EXHIBIT A
Subject to the provisions of this Agreement and the Plan, the above awarded TRSUs shall become vested and non-forfeitable in accordance with the vesting terms set forth below, provided that Grantee is employed by the Corporation or any of its Subsidiaries on the applicable vesting date(s):
(i)
[____] of the total number of TRSUs granted under this Agreement shall vest on each of:
[__________________________________________________________]
(ii)
Any fractional number of TRSUs resulting from the application of the foregoing vesting schedule may be rounded to the nearest whole number of shares.





Exhibit 10(e)
TCF FINANCIAL CORPORATION
___________

[_______]
[__] Units

RESTRICTED STOCK UNIT AGREEMENT
PURSUANT TO THE
STOCK INCENTIVE PLAN OF 2019
Performance-Based Restricted Stock Units
____________

This Performance-Based Restricted Stock Unit Agreement (this “Agreement”) is made as of [grant date] between TCF FINANCIAL CORPORATION (the “Corporation”), and the Grantee named above (“Grantee”).
The Stock Incentive Plan of 2019 (the “Plan”) is administered by the Compensation and Pension Committee of the Corporation’s Board of Directors (“Committee”). The Committee has determined that Grantee is eligible to participate in the Plan and has awarded performance-based restricted stock units (“PRSUs”) to Grantee, subject to the terms and conditions set forth in this Agreement and the Plan.
1.Award. The Corporation hereby awards to Grantee [__] PRSUs, assuming achievement of performance at target level (the “Target Shares”), subject to the restrictions imposed under this Agreement and the Plan. Each PRSU is initially equal to one share of the Corporation’s common stock, $1.00 par value (“Common Stock”), and is convertible into Common Stock pursuant to the formula determined by the Committee and attached as Exhibit A, subject to vesting as set forth below.

2.Transferability. Until the PRSUs vest and shares of Common Stock are delivered in settlement thereof, interests in PRSUs under this Agreement are generally not transferable by Grantee, except by will or according to the laws of descent and distribution. All rights with respect to the PRSUs granted hereunder are exercisable during Grantee’s lifetime only by Grantee, Grantee’s guardian or legal representative.

3.Vesting. Except as otherwise provided in this Agreement, PRSUs granted hereunder shall vest based on Grantee’s continued employment with the Corporation or its Subsidiaries and the Corporation’s achievement of performance targets determined by the Committee and attached as Exhibit A for the applicable “Performance Period” (as defined in Exhibit A). PRSUs shall vest, to the extent earned, upon the conclusion of the Restricted Period. The “Restricted Period” shall begin on the Effective Date, and end on the date that the Committee certifies the level of achievement of the PRSUs, but in no event later than March 5th of the year following the last day of the Performance Period. PRSUs are unvested under the Plan and under this Agreement until the end of the Restricted Period. Unless specified otherwise below, PRSUs shall be settled within 30 days following satisfaction of the applicable vesting requirements as set forth below.

4.Termination of Employment. If, during the Restricted Period, Grantee’s employment with the Corporation or any of its Subsidiaries is terminated by the Corporation without Cause (except as provided in Section 11.1 during the two-year period following a Change in Control), or




if Grantee terminates employment due to death or Disability, then, subject to any required delay pursuant to Section 14 below, within 30 days following Grantee’s termination of employment, Grantee shall be issued a number of shares of Common Stock equal to (a) the Target Shares (100% of the number of PRSUs set forth in Section 1 of this Agreement) or, upon such a termination on or following a Change in Control, the Earned PRSUs (as defined in Section 11), multiplied by (b) the quotient of (x) the number of full months that have elapsed between the first day of the Performance Period and the effective date of Grantee’s employment termination and (y) the total number of full months in the respective Performance Period. If Grantee terminates employment on or after attainment of age 55 with 10 years of service, having submitted written notice to the Corporation of his or her intended Retirement date at least one year in advance of such Retirement, then following such employment termination, subject to any required delay pursuant to Section 14 below, Grantee shall be issued a number of shares of Common Stock equal to (A) the Target Shares (100% of the number of PRSUs set forth in Section 1 of this Agreement) or, upon a Retirement on or following a Change in Control, the Earned PRSUs multiplied by (B) the quotient of (x) the number of full months that have elapsed between the first day of the Performance Period and the effective date of Grantee’s employment termination and (y) the total number of full months in the respective Performance Period. If Grantee does not provide the Corporation with written notice one year in advance of his or her intended Retirement date, then all PRSUs still subject to restrictions on Grantee’s Retirement date automatically shall be forfeited. Except to the extent provided herein, any unvested PRSUs shall be forfeited upon Grantee’s employment termination by the Corporation for Cause or upon Grantee’s voluntary termination of employment.

5.Employment by the Corporation. The award of PRSUs under this Agreement shall not impose upon the Corporation or any Subsidiary any obligation to retain Grantee in its employment for any given period or upon any specific terms of employment. The Corporation or any Subsidiary may at any time dismiss Grantee from employment, free from any liability or claim under the Plan or this Agreement, unless otherwise expressly provided in any written agreement with Grantee.

6.Shareholder Rights. During the Restricted Period, Grantee shall not be entitled to cash or non-cash dividends or dividend equivalents. Grantee shall have no voting rights with respect to shares of Common Stock underlying PRSUs, unless and until such shares of Common Stock are reflected as issued and outstanding on the Corporation’s stock ledger.

7.Legal Compliance. The Corporation shall not be obligated to issue any shares to Grantee, if such issuance would violate any law, order or regulation of any governmental authority.

8.Acknowledgments. Grantee acknowledges that he or she has been furnished with, and has read, the Plan and the Information Statement describing the Plan, and accepts this PRSU award subject to all of the terms, conditions, and provisions of this Agreement and the Plan. Grantee agrees not to resell or distribute the shares of Common Stock received upon vesting and settlement of Grantee’s PRSUs in compliance with such conditions as the Corporation may reasonably require to ensure compliance with federal and state securities laws and other Corporation policies, including stock ownership guidelines, if applicable.

9.Withholding. The Corporation or one of its Subsidiaries shall be entitled to (a) withhold and deduct from Grantee’s future wages (or from other amounts that may be due and owing to Grantee from the Corporation or a Subsidiary), or make other arrangements for the collection of all legally required amounts necessary to satisfy any and all federal, state, and local

2



income and employment tax withholding requirements attributable to the PRSUs awarded hereunder, including, without limitation, the award of, vesting of, or settlement with respect to the PRSUs; or (b) require Grantee promptly to remit the amount of such withholding to the Corporation or a Subsidiary before delivering shares of Common Stock in settlement of the vested PRSUs. The applicable withholding requirements shall be satisfied by withholding shares of Common Stock from the shares otherwise deliverable in settlement of the vested PRSUs, unless Grantee elects to satisfy the applicable withholding requirements in cash or by using a cash equivalent.

10.Effective Date. This award of PRSUs shall be effective as of the date first set forth above (the “Effective Date”).

11.Change in Control.

11.1Treatment upon a Change in Control. Notwithstanding anything contained in Section 8 of the Plan, following a Change in Control after the Effective Date, all PRSUs granted to Grantee under this Agreement shall be administered as set forth herein. If the Corporation is not the surviving entity, all Earned PRSUs (determined as set forth below) shall be converted into PRSUs of the surviving entity’s common stock at the applicable exchange ratio on the date of the Change in Control (or shall be otherwise adjusted as contemplated by Section 4.4(b) of the Plan) in a manner approved by the Committee or the Board. As of the latest practicable date prior to the consummation of such Change in Control, the performance goals applicable to such PRSUs shall be measured and the number of shares subject to such PRSUs from and after the date of consummation of the Change in Control shall equal the greater of (a) the Target Shares (100% of the number of PRSUs set forth in Section 1 of this Agreement that would be earned assuming performance goals applicable to any incomplete performance periods are deemed achieved at target levels), and (b) the number of shares of Common Stock that would have been earned based on the actual performance of the Corporation measured through the latest practicable date prior to the date of consummation of the Change in Control (which, unless otherwise determined by the Committee, shall be the most recently completed calendar quarter) (such higher number, the “Earned PRSUs”), as determined by the Committee prior to such Change in Control. Following the date of consummation of the Change in Control, the Earned PRSUs shall vest and be subject to forfeiture based on Grantee’s continued service through the last day of the Restricted Period. If, during the two-year period following the effective date of the Change in Control, Grantee’s employment is involuntarily terminated without Cause or Grantee terminates employment for Good Reason, the Earned PRSUs granted under this Agreement shall vest in full as of Grantee’s employment termination date, and the shares of Common Stock (or the common stock of the surviving entity, as applicable) in respect thereof shall be issued within 30 days following the Grantee’s termination of employment, subject to any required delay pursuant to Section 14 below. Following a Change in Control, Grantee’s rights in respect of Retirement, death and Disability as set forth in Section 4 with respect to PRSUs granted hereunder (and with respect to PRSUs granted prior to the date hereof, the terms applicable upon retirement, death and disability as set forth in the award agreement applicable to such PRSUs), including any proration, shall continue to apply to the PRSUs.

12.Definitions. Capitalized terms not defined herein shall be defined as in the Plan or in Grantee’s Individual Agreement (defined below). To the extent any capitalized term not defined herein is defined in both the Plan and Grantee’s Individual Agreement, the definition set forth in Grantee’s Individual Agreement shall control. As used in this Agreement, “Individual Agreement” means (a) any employment, change in control or severance agreement between Grantee and the Corporation or one of its affiliates (or any successor thereto) and (b) any retention agreement

3



between Grantee and the Corporation or one of its affiliates (or any successor thereto) that becomes effective on or following the date hereof.

13.Amendment. This Agreement shall not be modified except in a writing executed by the parties hereto.

14.Section 409A of the Code. This Agreement and the PRSUs granted hereunder are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom, and, with respect to PRSUs that constitute deferred compensation subject to Section 409A of the Code, the Plan and this Agreement as well as any Individual Agreement shall be interpreted and administered in all respects in accordance with Section 409A of the Code (including with respect to the application of any defined terms to PRSUs that constitute nonqualified deferred compensation, which defined terms shall be interpreted to have the meaning required by Section 409A of the Code to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code). Each payment (including the delivery of shares of Common Stock) under the PRSUs that constitutes nonqualified deferred compensation subject to Section 409A of the Code shall be treated as a separate payment for purposes of Section 409A of the Code and, to the extent to be made or delivered upon a termination of employment may only be made upon a “separation from service” under Section 409A of the Code to the extent necessary in order to avoid the imposition of penalty taxes on Grantee pursuant to Section 409A of the Code. In no event may Grantee, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that constitutes nonqualified deferred compensation subject to Section 409A of the Code. Notwithstanding any other provision of this Agreement to the contrary, if Grantee is a “specified employee” within the meaning of Section 409A of the Code (as determined in accordance with the methodology established by the Corporation as in effect on the date of Grantee’s separation from service), PRSUs that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code that would otherwise be deliverable by reason of Grantee’s separation from service during the six-month period immediately following such separation from service shall instead be provided on the earlier to occur of: (a) the date that is six months and one day after Grantee’s separation from service; or (b) the date of Grantee’s death.

15.Conflict Between the Plan, Agreement, and Individual Agreements. The Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms of this Agreement, an Individual Agreement and/or the terms of the Plan, the provisions of this Agreement, or, to the extent more favorable, the Individual Agreement shall control; provided, however, that notwithstanding anything in this Agreement to the contrary, any provisions of this Agreement relating to the timing of settlement or payment in respect of the PRSUs shall control in the event of any conflict between this Agreement, the Plan, any Prior Plan and the award agreements thereunder, and any Individual Agreement.

16.Non-Solicitation And Confidentiality Agreement. Grantee acknowledges and agrees that Grantee’s position with the Corporation or any affiliated companies (collectively “TCF Companies”) provided Grantee with access to non-public, confidential information (“Confidential Information”) that is valuable to TCF Companies and/or would be valuable to competitors, including but not limited to, information regarding Customers of the TCF Companies.

As a condition of accepting this Award and in consideration of the opportunity to receive shares of stock, Grantee and the Corporation agree as follows:

4



16.1    Non-Solicitation.  For the duration of Grantee’s employment with the TCF Companies and for a period of 12 months after Grantee’s employment terminates (for any reason), Grantee shall not, directly or indirectly (whether for compensation or without compensation): (i) solicit or attempt to solicit employees or independent contractors of TCF Companies with whom Grantee worked or who have skill sets with which Grantee became familiar during Grantee’s with TCF Companies, for the purpose of encouraging the employee or independent contractor to terminate his or her employment relationship or contract with TCF Companies to provide competing services on that employee or independent contractor’s own behalf or on behalf of any other person or entity; (ii) solicit or attempt to solicit any Customer for the purpose of providing products or services that are similar to or in competition with products or services of the TCF Companies; (iii) induce or attempt to induce any Customer to not do business with or stop doing business with TCF Companies; or (iv) assist any other person or entity in any of the foregoing. During the period of time, if any, that Grantee resided in the States of California or North Dakota, the above non-solicitation provisions will apply following Grantee’s termination of employment with TCF Companies only in situations where Grantee wrongfully used or disclosed trade secrets (as defined by California or North Dakota law, respectively) of the TCF Companies.

For purposes of this Section, “Customer” means current and prospective: (i) customers, such as borrowers, lessees, or depositors (individuals or entities); (ii) referral or origination sources, such as manufacturers, distributors, brokers, dealers or financial institutions; (iii) capital markets or funding sources; (iv) investors in or purchasers of financial contracts; or (v) manufacturers or distributors providing collateral repurchase or remarketing support, in each case with whom Grantee had Material Contact and/or about whom Grantee obtained Confidential Information during employment with the TCF Companies. For purposes of this Section, “Material Contact” means any interaction between the Customer and Grantee, within the two-year period prior to termination of Grantee’s employment, which took place to promote, manage, service or further the business relationship.

16.2    Confidentiality. During Grantee’s employment with TCF Companies and after Grantee’s termination from employment (for any reason), Grantee shall maintain the confidentiality of all Confidential Information. Other than in the reasonable performance of Grantee’s job duties and in the furtherance of the interests of TCF Companies during Grantee’s employment with the TCF Companies, Grantee will not disclose, publish or use Confidential Information without prior written consent. Upon Grantee’s termination from employment, Grantee will immediately return or securely destroy, as directed, any Confidential Information within Grantee’s possession or control, in any form or format, including electronically-stored information.

Grantee understands that (i) the Agreement is a binding contract, even if the PRSUs awarded in this Agreement never become vested; (ii) the TCF Companies may enforce this Agreement in court and, if this Agreement is violated, seek injunctive relief, monetary damages and other remedies available under applicable law; and (iii) nothing in this Agreement is intended to supersede or eliminate other obligations, including non-solicitation and/or confidentiality obligations, that Grantee may have to TCF Companies during or after Grantee’s employment terminates.    

* * *
[Signatures on Next Page]

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This PRSU grant has been issued by the Corporation by authority of its Compensation and Pension Committee.

                    
TCF FINANCIAL CORPORATION,
Corporation    
    

_________________________________
By: Craig R. Dahl
Its: President & CEO
                                            



__________________________________
Grantee    
Name:

                        




6



EXHIBIT A

Overview
This award of PRSUs will vest contingent upon the satisfactory achievement of corporate goals over the [_______________________________________] (the “Performance Period”). The number of PRSUs that ultimately vest and convert to shares may range from [_______________] of the underlying units originally awarded, depending on the Corporation’s performance relative to these goals.

Payout Calibration
The Compensation Committee has established threshold, target and maximum performance goals for the corporate financial goals upon which PRSU payouts are based. The payout rates for the achievement of the threshold, target and maximum goals are 50%, 100% and 150%, respectively, as a percentage of the Target Shares. Actual Corporation performance between threshold, target and maximum performance levels is interpolated on a linear, incremental basis to determine the precise payout percentage.

PRSU Measures
The vesting of PRSUs is dependent upon the achievement of with respect to [______________________________] measured over the Performance Period.


PRSU Goals
Performance Goal
[_________________________]
Weighting
Threshold
(50% Payout)
Target
(100% Payout)
Maximum
(150% Payout)
[_______________]
 
 
 
 


7


Exhibit 10(f)
DIRECTORS

RESTRICTED STOCK AGREEMENT


DIRECTORS RSA NO. [___] (Deferred Shares)

Shares of Restricted Stock are hereby awarded effective as of ____________ by TCF Financial Corporation (“TCF Financial”) to [_____________] (the “Grantee”) or to the Grantee’s account in the trust hereinafter described, in accordance with the following terms and conditions of this Restricted Stock Agreement (the “Agreement”):

1.
Share Award. TCF Financial hereby awards to the Grantee’s account in the TCF Directors Deferred Compensation Trust Agreement (the “Trust”) [______] shares (the “Deferred Shares”) of Common Stock, pursuant to the Stock Incentive Plan of 2019 (the “Stock Plan”) upon the terms and conditions therein and hereinafter set forth. The Deferred Shares shall be issued in the name of the trustee under the Trust (the “Trustee”) for the account of the Grantee, and shall be held by the Trustee pursuant to the terms of the Trust.

2.
Restrictions on Transfer and Restricted Periods.

a.    Beginning on the date of this Agreement (the “Commencement Date”), the Deferred Shares may not be sold, assigned, transferred, pledged or otherwise encumbered by the Trustee (except that the Trustee may transfer Deferred Shares to a successor Trustee or as provided in the Trust in the event of insolvency), except to TCF Financial or as hereinafter provided, and are subject to the restrictions set forth in the Stock Plan (collectively, the “Restrictions”).

b.    The period beginning on the Commencement Date and ending on the lapse of the Restrictions shall be referred to as the “Restricted Period.” The Restrictions will lapse and the Deferred Shares will vest, subject to the acceleration and forfeiture provisions herein, with respect to one hundred percent (100%) of the Deferred Shares on [____________].

c.    The Compensation and Pension Committee of the Board (the “Committee”) shall have the authority, in its discretion, to accelerate the time at which any or all of the Restrictions shall lapse with respect to any Deferred Shares, or to remove any or all such Restrictions, whenever the Committee may determine that such action is appropriate by reason of changes in applicable tax or other laws or other changes occurring after the commencement of the Restricted Period.

3.
Termination of Service. Except as provided in Section 8 below or in the Stock Plan, if the Grantee ceases to be a member of all boards of directors of TCF Financial and its affiliated companies for any reason, all Deferred Shares which at the time of such termination of board service are subject to the Restrictions shall upon termination of such service be forfeited and returned to TCF Financial unless the Committee, pursuant to its discretion under Section 2(c), shall determine to remove any or all of the Restrictions on such Deferred Shares prior

1



to such forfeiture; provided that in the event of Grantee’s retirement from service pursuant to the terms of Section 6.4(c) of the Stock Plan, Deferred Shares still subject to Restricted Period on that date shall lapse and all Deferred Shares shall be fully vested.

4.
Certificates for Shares. TCF Financial may issue one or more certificates in respect of the Deferred Shares to be held by the Trustee in the name of the Trustee for the account of the Grantee until the expiration of the Restricted Period with respect to the Deferred Shares represented thereby. Any such certificate(s) for Deferred Shares will be subject to a Restricted Period and bear the following legend:

“The shares represented by this certificate were issued subject to certain restrictions under the TCF Financial Corporation Stock Incentive Plan of 2019 (the “Plan”). This certificate is held subject to the terms and conditions in a restricted stock agreement that includes a prohibition against the sale or transfer of the stock represented by this certificate except in compliance with that agreement, which provides for forfeiture upon certain events. Copies of the Plan and the restricted stock agreement are on file in the office of the Secretary of the Company.”

The Grantee further agrees that, if at any time requested by the Company during the Restricted Period, s/he shall execute a stock power endorsed in blank and that s/he shall promptly deliver such stock power to TCF Financial. The Trustee shall, if requested by TCF Financial, execute a stock power endorsed in blank with respect to any Deferred Shares held by the Trustee.

Alternatively, TCF Financial may cause the Deferred Shares to be issued in the name of the Trustee in a sub-issue of Common Stock managed by the transfer agent which is subject to transferability restrictions set forth above.

5.
Grantee’s Rights. Grantee, as owner of the Shares, shall have the right to vote the Shares. Deferred Shares shall be subject in all respects to the terms of the Trust, including (but not limited to) the provisions which make such Deferred Shares subject to the claims of creditors in the event of insolvency of the company. Any dividends or other distributions declared payable on TCF Financial’s common stock on or after the grant date of the Deferred Shares until the Deferred Shares vest or forfeit shall be credited notionally to the Grantee in an amount equal to such declared dividends or other distributions on an equivalent number of shares of the TCF Financial’s common stock (“Dividend Equivalents”). Dividend Equivalents so credited shall be paid if, and only to the extent, the Deferred Shares to which they relate vest, as provided under the terms of the Stock Plan and this Restricted Stock Agreement. Dividend Equivalents credited in respect to Deferred Shares that are forfeited under the terms of the Stock Plan and this Restricted Stock Agreement, are correspondingly forfeited. No interest or other earnings shall be credited on Dividend Equivalents. Vested Dividend Equivalents shall be paid in cash at the same time as the underlying Deferred Shares to which they relate. Any dividends paid on Deferred Shares of a Grantee shall be credited to Trustee’s account for Grantee and shall be reinvested in Common Stock.


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6.
Expiration of Restricted Period. Upon the expiration of the Restricted Period with respect to any Deferred Shares, TCF Financial shall redeliver to the Trustee for the Grantee’s account any certificate(s) for Deferred Shares with respect to which Restricted Periods have expired without the restrictive legend provided for in Section 4 above. The Trustee shall hold such Deferred Shares for the account of the Grantee until such time as they become distributable pursuant to the provisions of the TCF Directors Deferred Compensation Plan, as amended and restated effective as of October 23, 2019 (the “Deferred Compensation Plan”). The Trustee shall accomplish such distribution by sending the Deferred Shares to TCF Financial’s transfer agent, with instructions to reissue them in the name of Grantee. Subject to the provisions of Section 3 above, any Deferred Shares for which Restricted Periods are still in effect at the time of such termination of service shall be forfeited and Trustee shall deliver any certificates for such Deferred Shares to TCF Financial for cancellation.

7.
Adjustments for Changes in Capitalization of TCF Financial. In the event of any change in the outstanding Common Stock of TCF Financial by reason of any reorganization, recapitalization, stock split, combination or exchange of shares, merger, consolidation or any change in the corporate structure of TCF Financial or in the shares of Common Stock, or in the event of any issuance of preferred stock or other change in the capital structure of TCF Financial which the Committee deems significant for purposes of this Agreement, the number and class of Deferred Shares covered by this Agreement shall be appropriately adjusted by the Committee, whose determination of the appropriate adjustment, or whose determination that there shall be no adjustment, shall be conclusive. Any Deferred Shares of Common Stock or other securities received, as a result of the foregoing, by the Grantee or the Trustee will be subject to the Restrictions and the certificate or other instruments representing or evidencing such Deferred Shares shall be legended and deposited with TCF Financial or the Trustee in the manner provided in Section 4 above.

8.
Effect of Change in Control. Subject to the six-month holding requirement, if any, of the Rule 16b-3 under the Securities Exchange Act of 1934, as amended, but notwithstanding any other provision in this Stock Plan (including, but not limited to, Sections 2(b) and 3 of this Agreement) in the event of a Change in Control, as defined in the Stock Plan, all terms and conditions of this Restricted Stock Agreement shall be deemed satisfied, and all the Deferred Shares shall vest as of the date of the Change in Control. Such vested Deferred Shares shall be distributed as provided in the Deferred Compensation Plan, in accordance with the procedures described in Section 6 of this Agreement.

9.
Stock Plan and Committee Interpretations as Controlling. The Deferred Shares hereby awarded and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Stock Plan, which are controlling. All determinations and interpretations of the Committee shall be binding and conclusive upon the Grantee or his or her legal representatives with regard to any question arising hereunder or under the Stock Plan.

10.
Grantee Service. Nothing in this Agreement shall limit the right of the Board, Board committees, or shareholders of TCF Financial to remove the Grantee from service as a Director, to refuse to renominate or reelect the Grantee as a Director or to enforce the duly adopted retirement policies of the Board of TCF Financial.

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11.
Grantee and Trustee Acceptance. The Grantee shall signify acceptance of the terms and conditions of this Agreement by signing in the space provided below and returning a signed copy hereof to TCF Financial. The Trustee (if applicable) shall signify its acceptance of the terms and conditions of this Agreement by signing in the space provided below and returning a signed copy hereof to TCF Financial.

12.
Section 409A of the Internal Revenue Code. Insofar as the arrangements described in this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended, the terms of this Agreement shall be interpreted as necessary to comply with the requirements of Section 409A, as interpreted by guidance issued by the Internal Revenue Service.


IN WITNESS WHEREOF, the parties hereto have caused this RESTRICTED STOCK AGREEMENT to be executed as of the date first above written.


TCF FINANCIAL CORPORATION

By___________________________
General Counsel
    
ACCEPTED:

___________________________________
Signature - [_________________]

                            
_____________________________
(Street Address)


_____________________________
(City, State and Zip Code)


TRUSTEE
The First National Bank in Sioux Falls

By: __________________________    


Title: _________________________



4


Exhibit 10(g)
DIRECTORS

RESTRICTED STOCK AGREEMENT

DIRECTORS RSA NO. ____ (Non-Deferred Shares)

Shares of Restricted Stock are hereby awarded effective as of [___________] by TCF Financial Corporation (“TCF Financial”) to [____________] (the “Grantee”) in accordance with the following terms and conditions of this Restricted Stock Agreement (the “Agreement”):

1.
Share Award. TCF Financial hereby awards to the Grantee [______] shares (the “Shares”) of Common Stock, par value $.01 per share (“Common Stock”) of TCF Financial, pursuant to the Stock Incentive Plan of 2019 (the “Stock Plan”) upon the terms and conditions therein and hereinafter set forth.

2.
Restrictions on Transfer and Restricted Periods.

a.
Beginning on the date of this Agreement (the “Commencement Date”), Shares may not be sold, assigned, transferred, pledged, or otherwise encumbered by the Grantee, except to TCF Financial or as hereinafter provided, and are subject to the restrictions set forth in the Stock Plan (collectively, the “Restrictions”).

b.
The period beginning on the Commencement Date and ending upon lapse of the Restrictions shall be referred to as the “Restricted Period” and the Shares will vest, subject to the acceleration and forfeiture provisions herein, with respect to one hundred percent (100%) of the Shares on [_________].

c.
The Compensation and Pension Committee of the Board (the “Committee”) shall have the authority, in its discretion, to accelerate the time at which any or all of the Restrictions shall lapse with respect to any Shares, or to remove any or all such Restrictions, whenever the Committee may determine that such action is appropriate by reason of changes in applicable tax or other laws or other changes occurring after the commencement of the Restricted Period.

3.
Termination of Service. Except as provided in Section 8 below or in the Stock Plan, if the Grantee ceases to be a member of all boards of directors of TCF Financial and its affiliated companies for any reason, all Shares which at the time of such termination of board service are subject to the Restrictions shall upon termination of such service be forfeited and returned to TCF Financial unless the Committee, pursuant to its discretion under Section 2(c), shall determine to remove any or all of the Restrictions on such Shares prior to such forfeiture; provided that in the event of Grantee’s retirement from service pursuant to the terms of Section 6.4(c) of the Stock Plan, the Restricted Periods for any Shares still subject to Restricted Periods on that date shall lapse and all Shares shall be fully vested.

4.
Certificates for Shares. TCF Financial shall issue one or more certificates in respect of the Shares and shall hold such certificates on deposit for the account of the Grantee until the expiration of the Restricted Period with respect to the Shares represented thereby. Certificate(s) for Shares subject to a Restricted Period shall bear the following legend:


1



“The shares represented by this certificate were issued subject to certain restrictions under the TCF Financial Corporation Stock Incentive Plan of 2019 (the “Plan”). This certificate is held subject to the terms and conditions in a restricted stock agreement that includes a prohibition against the sale or transfer of the stock represented by this certificate except in compliance with that agreement, which provides for forfeiture upon certain events. Copies of the Plan and the restricted stock agreement are on file in the office of the Secretary of the Company.”

The Grantee further agrees that, if at any time requested by the Company during the Restricted Period, s/he shall execute a stock power endorsed in blank and that s/he shall promptly deliver such stock power to TCF Financial. Alternatively, TCF Financial may cause the Shares to be issued in the name of the Grantee in a sub-issue of Common Stock managed by the transfer agent which is subject to the Restrictions.

5.
Grantee’s Rights. Grantee, as owner of the Shares, shall have the right to vote the Shares. Any dividends or other distributions declared payable on TCF Financial’s common stock on or after the grant date of the Shares until the Shares vest or forfeit shall be credited notionally to the Grantee in an amount equal to such declared dividends or other distributions on an equivalent number of shares of the TCF Financial’s common stock (“Dividend Equivalents”). Dividend Equivalents so credited shall be paid if, and only to the extent, the Shares to which they relate vest, as provided under the terms of the Stock Plan and this Restricted Stock Agreement. Dividend Equivalents credited in respect to Shares that are forfeited under the terms of the Plan and this Restricted Stock Agreement, are correspondingly forfeited. No interest or other earnings shall be credited on Dividend Equivalents. Vested Dividend Equivalents shall be paid in cash at the same time as the underlying Shares to which they relate.

6.
Expiration of Restricted Period. Upon the expiration of the Restricted Period with respect to any Shares, TCF Financial shall redeliver to the Grantee (or, if the Grantee is deceased, to his legal representative, beneficiary or heir) the certificate(s) in respect of such Shares, without the restrictive legend provided for in Section 4 above, and the related stock power(s) held by TCF Financial pursuant to Section 4 above. The Shares as to which the Restricted Period shall have lapsed or expired shall be free of the Restrictions and such certificates shall not bear the legend provided for in Section 4 above.

1.
Adjustments for Changes in Capitalization of TCF Financial. In the event of any change in the outstanding Common Stock of TCF Financial by reason of any reorganization, recapitalization, stock split, combination or exchange of shares, merger, consolidation or any change in the corporate structure of TCF Financial or in the shares of Common Stock, or in the event of any issuance of preferred stock or other change in the capital structure of TCF Financial which the Committee deems significant for purposes of this Agreement, the number and class of Shares covered by this Agreement shall be appropriately adjusted by the Committee, whose determination of the appropriate adjustment, or whose determination that there shall be no adjustment, shall be conclusive. Any Shares of Common Stock or other securities received, as a result of the foregoing, by the Grantee will be subject to the Restrictions and the certificate or other instruments representing or evidencing such Shares shall be legended and deposited with TCF Financial in the manner provided in Section 4 above.

2




8.
Effect of Change in Control. Subject to the six-month holding requirement, if any, of Rule 16b-3 under the Securities Exchange Act of 1934, as amended but notwithstanding any other provision in this Stock Plan (including, but not limited to, Sections 2(b) and 3 of this Agreement) in the event of a Change in Control, as defined in the Stock Plan, all terms and conditions of this Restricted Stock Agreement shall be deemed satisfied, and all the Shares shall vest as of the date of the Change in Control. Such vested Shares shall be distributed in accordance with the procedures described in Section 6 of this Agreement.

9.
Stock Plan and Committee Interpretations as Controlling. The Shares hereby awarded and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Stock Plan, which are controlling. All determinations and interpretations of the Committee shall be binding and conclusive upon the Grantee or his or her legal representatives with regard to any question arising hereunder or under the Stock Plan.

10.
Grantee Service. Nothing in this Agreement shall limit the right of the Board, Board committees, or shareholders of TCF Financial to remove the Grantee from service as a Director, to refuse to renominate or reelect the Grantee as a Director or to enforce the duly adopted retirement policies of the Board of TCF Financial.

11.
Grantee Acceptance. The Grantee shall signify acceptance of the terms and conditions of this Agreement by signing in the space provided below and returning a signed copy hereof to TCF Financial.

12.
Section 409A of the Internal Revenue Code. The arrangements described in this Agreement are not deferred arrangements and are intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended. In the event the Agreement (or any portion thereof) is determined to be subject to Section 409A, then the Agreement (or such portion) shall be interpreted as necessary to comply with the requirements of Section 409A, as interpreted by guidance issued by the Internal Revenue Service.






    

3



IN WITNESS WHEREOF, the parties hereto have caused this RESTRICTED STOCK AGREEMENT to be executed as of the date first above written.


TCF FINANCIAL CORPORATION

By ____________________________________________    
                 General Counsel

ACCEPTED:

________________________________________________________
Signature - [________________]


________________________________________________________    
(Street Address)


________________________________________________________    
(City, State and Zip Code)




4


Exhibit 10(i)
TCF FINANCIAL CORPORATION
___________

<NAME>
<###> Units

RESTRICTED STOCK UNIT AGREEMENT
PURSUANT TO
TCF FINANCIAL 2015 OMNIBUS INCENTIVE PLAN
Time-Based Restricted Stock Units
_________________________

This Time-Based Restricted Stock Unit Agreement (this “Agreement”) is made as of [GRANT DATE] (“Grant Date”), between TCF FINANCIAL CORPORATION, a Michigan corporation, (the “Corporation”), and the Grantee named above (“Grantee”).
On August 1, 2019, the Corporation assumed the TCF FINANCIAL 2015 OMNIBUS INCENTIVE PLAN (the “Plan”) in connection with its merger (the “Merger”) with TCF Financial Corporation, a Delaware corporation (“Legacy TCF”). Awards may be made under the Plan to employees employed by Legacy TCF prior to the date of the Merger and employees of the combined enterprise following the date of the Merger; grants may not be made to employees of the Corporation prior to the date of the Merger.
The Plan is administered by the Compensation and Pension Committee of the Corporation’s Board of Directors (“Committee”). The Committee has determined that Grantee is eligible to participate in the Plan and has awarded time-based restricted stock units (“TRSUs”) to Grantee, subject to the terms and conditions set forth in this Agreement and the Plan.
Grantee acknowledges receipt of a copy of the Plan and the Prospectus and accepts this TRSU award subject to all of the terms, conditions, and provisions of this Agreement and the Plan.
1.Award. The Corporation hereby awards to Grantee <###> TRSUs (TRSU No. [____]), subject to the restrictions imposed under this Agreement and the Plan. Each TRSU is initially equal to one share of the Corporation’s common stock, $1.00 par value (“Common Stock”), and is convertible into one share of Common Stock, subject to vesting as set forth below.

2.Transferability. Until the TRSUs vest in accordance with this Agreement and shares of Common Stock are delivered in settlement thereof, interests in TRSUs under this Agreement are generally not transferable by Grantee, except by will or according to the laws of descent and distribution. All rights with respect to the TRSUs granted hereunder are exercisable during Grantee’s lifetime only by Grantee, Grantee’s guardian or legal representative.

3.Vesting. Except as otherwise provided in this Agreement, TRSUs granted hereunder shall vest based on Grantee’s Continuous Service with the Corporation or any affiliated companies (collectively the “TCF Companies”), and the vesting schedule attached as Exhibit A. The periods





during which TRSUs are unvested are “Restricted Period(s).” The Restricted Period(s) shall lapse upon the date or dates identified in Exhibit A. TRSUs are unvested under the Plan and this Agreement until the end of the applicable Restricted Period. Unless specified otherwise below, TRSUs shall be settled within 30 days following satisfaction of the applicable vesting requirements as set forth below.

4.Termination of Employment. If, during the Restricted Period, Grantee’s employment with the TCF Companies is terminated by the Corporation without Cause (except as provided during the two-year period following a Change in Control), or if Grantee terminates employment due to death, or Disability, then the remaining restrictions on Grantee’s unvested TRSUs shall lapse and such award shall vest on a prorated basis and be convertible into a number of shares of Common Stock equal to (a) the number of Grantee’s unvested TRSUs as of the effective date of the termination, multiplied by (b) the quotient of (x) the number of full months that had elapsed since the most recent annual vesting date and the effective date of Grantee’s termination and (y) the total number of full months remaining in the vesting period since the most recent annual vesting date, which shall be settled within 30 days following the date of Grantee’s termination of employment, subject to any required delay pursuant to this Agreement. If Grantee terminates employment on or after attainment of age 55 with 10 years of service (the Grantee’s “Retirement”), having submitted written notice to the Corporation of his or her intended Retirement date at least one year in advance of such Retirement, then following such employment termination, the remaining restrictions on Grantee’s unvested TRSUs shall lapse and such award shall vest on a prorated basis and be convertible into a number of shares of Common Stock equal to (a) the number of Grantee’s unvested TRSUs as of the effective date of the termination, multiplied by (b) the quotient of (x) the number of full months that had elapsed since the most recent annual vesting date and the effective date of Grantee’s termination and (y) the total number of full months remaining in the vesting period since the most recent annual vesting date, which shall be settled within 30 days following the date of Grantee’s termination of employment, subject to any required delay provided pursuant to this Agreement. If Grantee does not provide the Corporation with written notice one year in advance of his or her intended Retirement date, then all TRSUs still subject to restrictions on Grantee’s Retirement date automatically shall be forfeited. Except to the extent provided herein, any unvested TRSUs shall be forfeited upon Grantee’s employment termination by the Corporation for Cause, or upon Grantee’s voluntary termination of employment.

5.Employment by the Corporation. The award of TRSUs under this Agreement shall not impose upon the TCF Companies any obligation to retain Grantee in its employment for any given period or upon any specific terms of employment. The TCF Companies may at any time dismiss Grantee from employment, free from any liability or claim under the Plan or this Agreement, unless otherwise expressly provided in any written agreement with Grantee.

6.Shareholder Rights. Any dividends or other distributions declared payable on the Corporation’s Common Stock on or after the grant date of the TRSUs until the TRSUs vest or forfeit shall be credited notionally to the Grantee in an amount equal to such declared dividends or other distributions on an equivalent number of shares of the Corporation’s Common Stock (“Dividend Equivalents”). Dividend Equivalents so credited shall be paid if, and only to the extent that, the TRSUs to which they relate vest, as provided under the terms of the Plan and this Agreement. Dividend Equivalents credited in respect to TRSUs that are forfeited under the terms of the Plan and this Agreement, are correspondingly forfeited. No interest or other earnings shall be credited





on Dividend Equivalents. Vested Dividend Equivalents shall be paid in cash at the same time as the TRSUs to which they relate vest and are converted into Common Stock.

7.Legal Compliance. The issuance and transfer of shares of Common Stock shall be subject to compliance by the Corporation and the Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Corporation’s shares of Common Stock may be listed. No shares of Common Stock shall be issued or transferred unless and until any then applicable requirements of state and federal laws and regulatory agencies have been fully complied with to the satisfaction of the Corporation and its counsel.

8.Acknowledgments. Grantee acknowledges that he or she has been furnished with, and has read, the Plan. Grantee agrees not to resell or distribute the shares of Common Stock received upon vesting and settlement of Grantee’s TRSUs in compliance with such conditions as the Corporation may reasonably require, to ensure compliance with federal and state securities laws and other Corporation policies, including stock ownership guidelines, if applicable.

9.Withholding. The TCF Companies shall be entitled to (a) withhold and deduct from Grantee’s future wages (or from other amounts that may be due and owing to Grantee from the TCF Companies, or make other arrangements for the collection of all legally required amounts necessary to satisfy any and all federal, state, and local income and employment tax withholding requirements attributable to the TRSUs awarded hereunder, including, without limitation, the award of, vesting of, payments of dividends with respect to, or settlement with respect to, the TRSUs; or (b) require Grantee promptly to remit the amount of such withholding to the TCF Companies before delivering shares of Common Stock in settlement of the vested TRSUs. The applicable withholding requirements shall be satisfied by withholding shares of Common Stock from the shares otherwise deliverable in settlement of the vested TRSUs, unless Grantee elects to satisfy the applicable withholding requirements in cash or by using a cash equivalent.

10.Effective Date. This award of TRSUs shall be effective as of the date first set forth above.
10.1Treatment upon a Change in Control. Notwithstanding anything contained in the Plan, following a Change in Control after the Effective Date, all TRSUs granted to Grantee under this Agreement outstanding at the time of the Change in Control and which have not previously vested shall be administered as set forth herein. If the Corporation is not the surviving entity, all unvested TRSUs shall be converted into TRSUs of the surviving entity’s common stock at the applicable exchange ratio on the date of the Change in Control (or shall be otherwise adjusted as contemplated by the Plan) in a manner approved by the Committee or the Board. The TRSUs shall continue to vest under the vesting schedule in effect immediately prior to the Change in Control. If, during the two-year period following the Change in Control, Grantee’s employment is involuntarily terminated without Cause or Grantee terminates employment for Good Reason, any unvested TRSUs granted under this Agreement shall 100% vest and be converted into shares of Common Stock (or the common stock of the surviving entity, as applicable), with settlement to occur within 30 days following such termination of employment, subject to any required delay pursuant to this Agreement. Following a Change in Control after the Effective Date, Grantee’s rights in respect of Retirement, death and Disability as set forth in this Agreement with respect to TRSUs granted under this Agreement, including any proration, shall continue to apply to the TRSUs.






11.Definitions. Capitalized terms not defined herein shall be defined as in the Plan or in Grantee’s Individual Agreement (defined below). To the extent any capitalized term not defined herein is defined in both the Plan and Grantee’s Individual Agreement, the definition set forth in Grantee’s Individual Agreement shall control. As used in this Agreement, “Individual Agreement” means (a) any employment, change in control or severance agreement between Grantee and the Corporation or one of its Affiliates (or any successor thereto) and (b) any retention agreement between Grantee and the Corporation or one of its affiliates (or any successor thereto) that becomes effective on or following the date hereof.

12.Amendment. The Committee has the right to amend, alter, suspend, discontinue or cancel the TRSUs, prospectively or retroactively; provided, however, that no such amendment shall adversely affect the Grantee’s material rights under this Agreement without the Grantee’s consent.

13.Section 409A of the Code. This Agreement and the TRSUs granted hereunder are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom, and, with respect to TRSUs that constitute deferred compensation subject to Section 409A of the Code, the Plan and this Agreement as well as any Individual Agreement shall be interpreted and administered in all respects in accordance with Section 409A of the Code (including with respect to the application of any defined terms to TRSUs that constitute nonqualified deferred compensation, which defined terms shall be interpreted to have the meaning required by Section 409A of the Code to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code). Each payment (including the delivery of shares of Common Stock) under the TRSUs that constitutes nonqualified deferred compensation subject to Section 409A of the Code shall be treated as a separate payment for purposes of Section 409A of the Code and, to the extent to be made or delivered upon a termination of employment may only be made upon a “separation from service” under Section 409A of the Code to the extent necessary in order to avoid the imposition of penalty taxes on Grantee pursuant to Section 409A of the Code. In no event may Grantee, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that constitutes nonqualified deferred compensation subject to Section 409A of the Code. Notwithstanding the foregoing, the Corporation makes no representations that the payments and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Corporation be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Grantee on account of non-compliance with Section 409A of the Code. Notwithstanding any other provision of this Agreement to the contrary, if Grantee is a “specified employee” within the meaning of Section 409A of the Code (as determined in accordance with the methodology established by the Corporation as in effect on the date of Grantee’s separation from service), TRSUs that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code that would otherwise be deliverable by reason of Grantee’s separation from service during the six-month period immediately following such separation from service shall instead be provided on the earlier to occur of: (a) the date that is six months and one day after Grantee’s separation from service; or (b) the date of Grantee’s death.

14.Conflict Between Plan, Agreement, and Individual Agreements. The Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms of this Agreement, an Individual Agreement and/or the terms of the Plan, the provisions of this Agreement, or, to the extent more favorable, the Individual Agreement shall control; provided, however, that





notwithstanding anything in this Agreement to the contrary, any provisions of this Agreement relating to the timing of settlement or payment in respect of the TRSUs shall control in the event of any conflict between this Agreement, the Plan, and any Individual Agreement.

15.Non-Solicitation And Confidentiality Agreement. Grantee acknowledges and agrees that Grantee’s position with the TCF Companies provided Grantee with access to non-public, confidential information (“Confidential Information”) that is valuable to TCF Companies and/or would be valuable to competitors, including but not limited to, information regarding Customers of the TCF Companies.

As a condition of accepting this Award and in consideration of the opportunity to receive TRSUs, Grantee and the Corporation agree as follows:
(a)Non-Solicitation.  For the duration of Grantee’s employment with the TCF Companies and for a period of 12 months after Grantee’s employment terminates (for any reason), Grantee shall not, directly or indirectly (whether for compensation or without compensation): (i) solicit or attempt to solicit employees or independent contractors of TCF Companies with whom Grantee worked or who have skill sets with which Grantee became familiar during Grantee’s employment with TCF Companies, for the purpose of encouraging the employee or independent contractor to terminate his or her employment relationship or contract with TCF Companies to provide competing services on that employee or independent contractor’s own behalf or on behalf of any other person or entity; (ii) solicit or attempt to solicit any Customer for the purpose of providing products or services that are similar to or in competition with products or services of the TCF Companies; (iii) induce or attempt to induce any Customer to not do business with or stop doing business with TCF Companies; or (iv) assist any other person or entity in any of the foregoing. During the period of time, if any, that Grantee resided in the States of California or North Dakota, the above non-solicitation provisions will apply following Grantee’s termination of employment with TCF Companies only in situations where Grantee wrongfully used or disclosed trade secrets (as defined by California or North Dakota law, respectively) of the TCF Companies.

For purposes of this Section, “Customer” means current and prospective: (i) customers, such as borrowers, lessees, or depositors (individuals or entities); (ii) referral or origination sources, such as manufacturers, distributors, brokers, dealers or financial institutions; (iii) capital markets or funding sources; (iv) investors in or purchasers of financial contracts; or (v) manufacturers or distributors providing collateral repurchase or remarketing support, in each case with whom Grantee had Material Contact and/or about whom Grantee obtained Confidential Information during employment with the TCF Companies. For purposes of this Section, “Material Contact” means any interaction between the Customer and Grantee, within the two-year period prior to termination of Grantee’s employment, which took place to promote, manage, service or further the business relationship.

(b)Confidentiality. During Grantee’s employment with TCF Companies and after Grantee’s termination from employment (for any reason), Grantee shall maintain the confidentiality of all Confidential Information. Other than in the reasonable performance of Grantee’s job duties and in the furtherance of the interests of TCF Companies during Grantee’s employment with the TCF Companies, Grantee will not disclose, publish or use Confidential Information without prior written consent. Upon Grantee’s termination from employment, Grantee will immediately return





or securely destroy, as directed, any Confidential Information within Grantee’s possession or control, in any form or format, including electronically-stored information.

Grantee understands that (i) the Agreement is a binding contract, even if the TRSUs awarded in this Agreement never become vested; (ii) the TCF Companies may enforce this Agreement in court and, if this Agreement is violated, seek injunctive relief, monetary damages and other remedies available under applicable law; and (iii) nothing in this Agreement is intended to supersede or eliminate other obligations, including non-solicitation and/or confidentiality obligations, that Grantee may have to TCF Companies during or after Grantee’s employment terminates.
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This TRSU grant has been issued by the Corporation by authority of its Compensation and Pension Committee.


TCF FINANCIAL CORPORATION,
Corporation    
    

_________________________________
By: Craig R. Dahl
Its: President & CEO
                                            



__________________________________
Grantee    
Name:






EXHIBIT A
Subject to the provisions of this Agreement and the Plan, the above awarded TRSUs shall become vested and non-forfeitable in accordance with the vesting terms set forth below, provided that Grantee is employed by the Corporation or any of its Subsidiaries on the applicable vesting date(s):
(i)
[____] of the total number of TRSUs granted under this Agreement shall vest on each of:
[__________________________________________________________]
(ii)
Any fractional number of TRSUs resulting from the application of the foregoing vesting schedule may be rounded to the nearest whole number of shares.





Exhibit 10(j)
TCF FINANCIAL CORPORATION
___________

[_________]
[__] Units

RESTRICTED STOCK UNIT AGREEMENT
PURSUANT TO
TCF FINANCIAL 2015 OMNIBUS INCENTIVE PLAN
Performance-Based Restricted Stock Units
____________

This Performance-Based Restricted Stock Unit Agreement (this “Agreement”) is made as of [grant date] between TCF FINANCIAL CORPORATION, a Michigan corporation (the “Corporation”), and the Grantee named above (“Grantee”).
On August 1, 2019, the Corporation assumed the TCF FINANCIAL 2015 OMNIBUS INCENTIVE PLAN (the “Plan”) in connection with its merger (the “Merger”) with legacy TCF Financial Corporation, a Delaware corporation (“Legacy TCF”). Awards may be made under the Plan to employees employed by Legacy TCF prior to the date of the Merger and employees of the combined enterprise following the date of the Merger; grants may not be made to employees who were employees of the Corporation prior to the date of the Merger.
The Plan is administered by the Compensation and Pension Committee of the Corporation’s Board of Directors (“Committee”). The Committee has determined that Grantee is eligible to participate in the Plan and has awarded performance-based restricted stock units (“PRSUs”) to Grantee, subject to the terms and conditions set forth in this Agreement and the Plan.

1.Award. The Corporation hereby awards to Grantee [___] PRSUs (PRSU No. [_____]), assuming achievement of performance at target level (the “Target Shares”), subject to the restrictions imposed under this Agreement and the Plan. Each PRSU is initially equal to one share of the Corporation’s common stock, $1.00 par value (“Common Stock”), and is convertible into Common Stock pursuant to the formula determined by the Committee and attached as Exhibit A, subject to vesting as set forth below. If any change is made to the outstanding Common Stock or the capital structure of the Corporation, if required, the PRSUs shall be adjusted or terminated in any manner as contemplated by Section 11 of the Plan.

2.Transferability. Until the PRSUs vest and shares of Common Stock are delivered in settlement thereof, interests in PRSUs under this Agreement are generally not transferable by Grantee, except by will or according to the laws of descent and distribution. All rights with respect to the PRSUs granted hereunder are exercisable during Grantee’s lifetime only by Grantee, Grantee’s guardian or legal representative.

3.Vesting. Except as otherwise provided in this Agreement, PRSUs granted hereunder shall vest based on Grantee’s Continuous Service as an employee of the Corporation or its Affiliates and the Corporation’s achievement of performance targets determined by the Committee and attached as Exhibit A for the applicable “Performance Period” (as defined in Exhibit A). PRSUs shall vest, to the extent earned, upon the conclusion of the Restricted Period. The “Restricted




Period” shall begin on the Effective Date and end on the date that the Committee certifies the level of achievement of the PRSUs, but in no event later than March 5th of the year following the last day of the Performance Period. PRSUs are unvested under the Plan and under this Agreement until the end of the Restricted Period. Unless specified otherwise below, PRSUs shall be settled within 30 days following satisfaction of the applicable vesting requirements as set forth below.

4.Termination of Employment. If, during the Restricted Period, Grantee’s employment with the Corporation or any of its Affiliates is terminated by the Corporation without Cause (except as provided in Section 11.1 during the two-year period following a Change in Control), or if Grantee terminates employment due to death or Disability, then, subject to any required delay pursuant to Section 14 below, within 30 days following Grantee’s termination of employment, Grantee shall be issued a number of shares of Common Stock equal to (a) the Target Shares (100% of the number of PRSUs set forth in Section 1 of this Agreement) or, upon such a termination on or following a Change in Control, the Earned PRSUs (as defined in Section 11.1 multiplied by (b) the quotient of (x) the number of full months that have elapsed between the first day of the Performance Period and the effective date of Grantee’s employment termination and (y) the total number of full months in the respective Performance Period. If Grantee terminates employment on or after attainment of age 55 with 10 years of service (the Grantee’s “Retirement”), having submitted written notice to the Corporation of his or her intended Retirement date at least one year in advance of such Retirement, then following such employment termination, subject to any required delay pursuant to Section 14 below, Grantee shall be issued a number of shares of Common Stock equal to (A) the Target Shares (100% of the number of PRSUs set forth in Section 1 of this Agreement) or, upon a Retirement on or following a Change in Control, the Earned PRSUs multiplied by (B) the quotient of (x) the number of full months that have elapsed between the first day of the Performance Period and the effective date of Grantee’s employment termination and (y) the total number of full months in the respective Performance Period. If Grantee does not provide the Corporation with written notice one year in advance of his or her intended Retirement date, then all PRSUs still subject to restrictions on Grantee’s Retirement date automatically shall be forfeited. Except to the extent provided herein, any unvested PRSUs shall be forfeited upon Grantee’s employment termination by the Corporation for Cause or upon Grantee’s voluntary termination of employment.

5.Employment by the Corporation. The award of PRSUs under this Agreement shall not impose upon the Corporation or any Affiliate any obligation to retain Grantee in its employment for any given period or upon any specific terms of employment. The Corporation or any Affiliate may at any time dismiss Grantee from employment, free from any liability or claim under the Plan or this Agreement, unless otherwise expressly provided in any written agreement with Grantee.

6.Shareholder Rights. During the Restricted Period, Grantee shall not be entitled to cash or non-cash dividends or dividend equivalents. Grantee shall have no voting rights with respect to shares of Common Stock underlying PRSUs, unless and until such shares of Common Stock are reflected as issued and outstanding on the Corporation’s stock ledger.

7.Legal Compliance. The Corporation shall not be obligated to issue any shares to Grantee, if such issuance would violate any law, order or regulation of any governmental authority.

8.Acknowledgments. Grantee acknowledges receipt of a copy of the Plan and the Plan Summary and accepts this PRSU award subject to all of the terms, conditions, and provisions of this Agreement and the Plan. Grantee agrees not to resell or distribute the shares of Common Stock received upon vesting and settlement of Grantee’s PRSUs in compliance with such conditions as

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the Corporation may reasonably require to ensure compliance with federal and state securities laws and other Corporation policies, including stock ownership guidelines, if applicable.

9.Withholding. The Corporation or one of its Affiliates shall be entitled to (a) withhold and deduct from Grantee’s future wages (or from other amounts that may be due and owing to Grantee from the Corporation or an Affiliate), or make other arrangements for the collection of all legally required amounts necessary to satisfy any and all federal, state, and local income and employment tax withholding requirements attributable to the PRSUs awarded hereunder, including, without limitation, the award of, vesting of, or settlement with respect to the PRSUs; or (b) require Grantee promptly to remit the amount of such withholding to the Corporation or an Affiliate before delivering shares of Common Stock in settlement of the vested PRSUs. The applicable withholding requirements shall be satisfied by withholding shares of Common Stock from the shares otherwise deliverable in settlement of the vested PRSUs, unless Grantee elects to satisfy the applicable withholding requirements in cash or by using a cash equivalent.

10.Effective Date. This award of PRSUs shall be effective as of the date first set forth above.

11.Change in Control.

11.1Treatment upon a Change in Control. Notwithstanding Section 4 herein, following a Change in Control after the Effective Date, all PRSUs granted to Grantee under this Agreement outstanding at the time of the Change in Control and for which performance results have not been measured in the ordinary course prior to such Change in Control shall be administered as set forth herein. If the Corporation is not the surviving entity, all Earned PRSUs (determined as set forth below) shall be converted into PRSUs of the surviving entity’s common stock at the applicable exchange ratio on the date of the Change in Control (or shall be otherwise adjusted as contemplated by the Plan) in a manner approved by the Committee or the Board. As of the latest practicable date prior to the consummation of such Change in Control, the performance goals applicable to such PRSUs shall be measured and the number of shares subject to such PRSUs from and after the date of consummation of the Change in Control shall equal the greater of (a) the Target Shares (100% of the number of PRSUs set forth in Section 1 of this Agreement, and (b) the number of shares of Common Stock that would have been earned based on the actual performance of the Corporation measured through the latest practicable date prior to the date of consummation of the Change in Control (which, unless otherwise determined by the Committee, shall be the most recently completed calendar quarter) (such higher number, the “Earned PRSUs”), as determined by the Committee prior to such Change in Control. Following the date of consummation of the Change in Control, the Earned PRSUs shall vest and be subject to forfeiture based on Grantee’s Continuous Service through the last day of the Restricted Period. If, during the two-year period following the effective date of the Change in Control, Grantee’s employment is involuntarily terminated without Cause or Grantee terminates employment for Good Reason, the Earned PRSUs granted under this Agreement shall vest in full as of Grantee’s employment termination date, and the shares of Common Stock (or the common stock of the surviving entity, as applicable) in respect thereof shall be issued within 30 days following the Grantee’s termination of employment, subject to any required delay pursuant to Section 14 below. Following a Change in Control, Grantee’s rights in respect of Retirement, death and Disability as set forth in Section 4 with respect to PRSUs granted hereunder, including any proration, shall continue to apply to the PRSUs.


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12.Definitions. Capitalized terms not defined herein shall be defined as in the Plan or in Grantee’s Individual Agreement (defined below). To the extent any capitalized term not defined herein is defined in both the Plan and Grantee’s Individual Agreement, the definition set forth in Grantee’s Individual Agreement shall control. As used in this Agreement, “Individual Agreement” means (a) any employment, change in control or severance agreement between Grantee and the Corporation or one of its Affiliates (or any successor thereto) and (b) any retention agreement between Grantee and the Corporation or one of its affiliates (or any successor thereto) that becomes effective on or following the date hereof.

13.Amendment. This Agreement shall not be modified except in a writing executed by the parties hereto.

14.Section 409A of the Code. This Agreement and the PRSUs granted hereunder are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom, and, with respect to PRSUs that constitute deferred compensation subject to Section 409A of the Code, the Plan and this Agreement as well as any Individual Agreement shall be interpreted and administered in all respects in accordance with Section 409A of the Code (including with respect to the application of any defined terms to PRSUs that constitute nonqualified deferred compensation, which defined terms shall be interpreted to have the meaning required by Section 409A of the Code to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code). Each payment (including the delivery of shares of Common Stock) under the PRSUs that constitutes nonqualified deferred compensation subject to Section 409A of the Code shall be treated as a separate payment for purposes of Section 409A of the Code and, to the extent to be made or delivered upon a termination of employment may only be made upon a “separation from service” under Section 409A of the Code to the extent necessary in order to avoid the imposition of penalty taxes on Grantee pursuant to Section 409A of the Code. In no event may Grantee, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that constitutes nonqualified deferred compensation subject to Section 409A of the Code. Notwithstanding any other provision of this Agreement to the contrary, if Grantee is a “specified employee” within the meaning of Section 409A of the Code (as determined in accordance with the methodology established by the Corporation as in effect on the date of Grantee’s separation from service), PRSUs that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code that would otherwise be deliverable by reason of Grantee’s separation from service during the six-month period immediately following such separation from service shall instead be provided on the earlier to occur of: (a) the date that is six months and one day after Grantee’s separation from service; or (b) the date of Grantee’s death.

15.Conflict Between the Plan, Agreement, and Individual Agreements. The Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms of this Agreement, an Individual Agreement and/or the terms of the Plan, the provisions of this Agreement, or, to the extent more favorable, the Individual Agreement shall control; provided, however, that notwithstanding anything in this Agreement to the contrary, any provisions of this Agreement relating to the timing of settlement or payment in respect of the PRSUs shall control in the event of any conflict between this Agreement, the Plan, any Prior Plan and the award agreements thereunder, and any Individual Agreement.

16.Non-Solicitation And Confidentiality Agreement. Grantee acknowledges and agrees that Grantee’s position with the Corporation or any affiliated companies (collectively “TCF Companies”) provides Grantee with access to non-public, confidential information (“Confidential

4



Information”) that is valuable to TCF Companies and/or would be valuable to competitors, including but not limited to, information regarding Customers of the TCF Companies.

As a condition of accepting this Award and in consideration of the opportunity to receive shares of stock, Grantee and the Corporation agree as follows:
(a)Non-Solicitation.  For the duration of Grantee’s employment with the TCF Companies and for a period of 12 months after Grantee’s employment terminates (for any reason), Grantee shall not, directly or indirectly (whether for compensation or without compensation): (i) solicit or attempt to solicit employees or independent contractors of TCF Companies with whom Grantee worked or who have skill sets with which Grantee became familiar during Grantee’s employment with TCF Companies, for the purpose of encouraging the employee or independent contractor to terminate his or her employment relationship or contract with TCF Companies to provide competing services on that employee or independent contractor’s own behalf or on behalf of any other person or entity; (ii) solicit or attempt to solicit any Customer for the purpose of providing products or services that are similar to or in competition with products or services of the TCF Companies; (iii) induce or attempt to induce any Customer to not do business with or stop doing business with TCF Companies; or (iv) assist any other person or entity in any of the foregoing. During the period of time, if any, that Grantee resided in the States of California or North Dakota, the above non-solicitation provisions will apply following Grantee’s termination of employment with TCF Companies only in situations where Grantee wrongfully used or disclosed trade secrets (as defined by California or North Dakota law, respectively) of the TCF Companies.

For purposes of this Section, “Customer” means current and prospective: (i) customers, such as borrowers, lessees, or depositors (individuals or entities); (ii) referral or origination sources, such as manufacturers, distributors, brokers, dealers or financial institutions; (iii) capital markets or funding sources; (iv) investors in or purchasers of financial contracts; or (v) manufacturers or distributors providing collateral repurchase or remarketing support, in each case with whom Grantee had Material Contact and/or about whom Grantee obtained Confidential Information during employment with the TCF Companies. For purposes of this Section, “Material Contact” means any interaction between the Customer and Grantee, within the two-year period prior to termination of Grantee’s employment, which took place to promote, manage, service or further the business relationship.

(b)Confidentiality. During Grantee’s employment with TCF Companies and after Grantee’s termination from employment (for any reason), Grantee shall maintain the confidentiality of all Confidential Information. Other than in the reasonable performance of Grantee’s job duties and in the furtherance of the interests of TCF Companies during Grantee’s employment with the TCF Companies, Grantee will not disclose, publish or use Confidential Information without prior written consent. Upon Grantee’s termination from employment, Grantee will immediately return or securely destroy, as directed, any Confidential Information within Grantee’s possession or control, in any form or format, including electronically-stored information.
 
17.Delivery and Registration of Shares of Common Stock. The Corporation's obligation to deliver shares of Common Stock hereunder shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Grantee or any other person to whom such shares of Common Stock are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933, as amended (the "Securities Act"), or any other federal, state, or local securities law or regulation.

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It may be provided that any representation requirement shall become inoperative upon a registration of such shares of Common Stock or other action eliminating the necessity of such representation under the Securities Act or other securities law or regulation. The Corporation shall not be required to deliver any shares of Common Stock under the Plan prior to (i) the admission of such Shares to listing on any stock exchange on which the Common Stock may be listed, and (ii) the completion of such registration or other qualification of such Shares under state or federal law, rule, or regulation, as the Committee shall determine to be necessary or advisable.

Grantee understands that (i) the Agreement is a binding contract, even if the PRSUs awarded in this Agreement never become vested; (ii) the TCF Companies may enforce this Agreement in court and, if this Agreement is violated, seek injunctive relief, monetary damages and other remedies available under applicable law; and (iii) nothing in this Agreement is intended to supersede or eliminate other obligations, including non-solicitation and/or confidentiality obligations, that Grantee may have to TCF Companies during or after Grantee’s employment terminates.
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[Signatures on Next Page]




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This PRSU grant has been issued by the Corporation by authority of its Compensation and Pension Committee.

                    
TCF FINANCIAL CORPORATION,
Corporation    
    

_________________________________
By: Craig R. Dahl
Its: President & CEO
                                            



__________________________________
Grantee    
Name:





                            
                

                        




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EXHIBIT A

Overview
This award of PRSUs will vest contingent upon the satisfactory achievement of corporate goals over the [_______________________________________] (the “Performance Period”). The number of PRSUs that ultimately vest and convert to shares may range from [_______________] of the underlying units originally awarded, depending on the Corporation’s performance relative to these goals.

Payout Calibration
The Compensation Committee has established threshold, target and maximum performance goals for the corporate financial goals upon which PRSU payouts are based. The payout rates for the achievement of the threshold, target and maximum goals are 50%, 100% and 150%, respectively, as a percentage of the Target Shares. Actual Corporation performance between threshold, target and maximum performance levels is interpolated on a linear, incremental basis to determine the precise payout percentage.

PRSU Measures
The vesting of PRSUs is dependent upon the achievement of with respect to [______________________________] measured over the Performance Period.

PRSU Goals

Performance Goal
[_________________________]
Weighting
Threshold
(50% Payout)
Target
(100% Payout)
Maximum
(150% Payout)
[_______________]
 
 
 
 


8


Exhibit 10(k)
SEPARATION AND RELEASE
THIS SEPARATION AND RELEASE AGREEMENT (the “Release”) is made as of the 8th day of May, 2020, by and between TCF Financial Corporation (“TCF”) and David T. Provost (“Executive”) (in the aggregate, the “Parties”).
WHEREAS, Executive’s employment with TCF terminated effective May 8, 2020; and
WHEREAS, TCF and Executive previously entered into a Retention Agreement dated as of January 27, 2019 (as amended and restated by the Parties effective as of March 10, 2020, the “Retention Agreement”), pursuant to which Executive is entitled to receive certain additional compensation upon termination of Executive’s employment with TCF under certain qualifying termination events; and
WHEREAS, at the time of Executive’s separation, the Parties have negotiated a termination supplement payable to Executive (the “Termination Supplement”) in addition to and totally separate from Executive’s compensation under the Retention Agreement; and
WHEREAS, Executive’s receipt of the additional compensation under the Retention Agreement is conditioned upon the execution of a Release that is mutually acceptable to both Parties; and
WHEREAS, Executive’s receipt of the additional compensation from the Termination Supplement also is conditioned upon the execution of a Release that is mutually acceptable to both Parties; and
WHEREAS, Executive’s status as a director of TCF shall remain unaffected by this Release; and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed between the Parties as follows:
1.    Retention Agreement Compensation. Subject to the terms and conditions hereof, TCF shall pay Executive the compensation set forth in Section 6(b)(i) of the Retention Agreement, net of applicable withholding taxes, commencing after this executed Release becomes enforceable with all expiration periods having expired, and in accordance with the terms of the Retention Agreement.
2.    Termination Supplement. Subject to the terms and conditions hereof, TCF shall pay Executive a Termination Supplement in the amount of $8,600,000, net of applicable withholding taxes, in one lump sum cash payment, conditioned on Executive’s separation from service as a TCF employee, and payable after this executed Release becomes enforceable, with all expiration periods having expired, and no later than June 12, 2020. The Termination Supplement payment is intended to satisfy the short-term deferral exemption under Treasury Regulation 1.409A-1(b)(4) and is to be construed accordingly. Notwithstanding the foregoing, TCF has no responsibility for any taxes, payments or interest incurred by Executive in connection with payment of the Termination Supplement, which is subject to TCF’s clawback policy and all

1



restrictive covenant agreements in effect between Executive and TCF on the date of his separation from service.
3.    Release.
(a)In exchange for the good and valuable consideration set forth herein, Executive agrees for himself, his heirs, administrators, representatives, executors, successors and assigns (“Releasors”), to irrevocably and unconditionally release, waive and forever discharge any and all manner of action, causes of action, claims, rights, promises, charges, suits, damages, debts, lawsuits, liabilities, rights, due controversies, charges, complaints, remedies, losses, demands, obligations, costs, expenses, fees (including, without limitation attorneys’ fees), or any and all other liabilities or claims of whatsoever nature, whether arising in contract, tort, or any other theory of action, whether arising in law or in equity, whether known or unknown, choate or inchoate, matured or unmatured, contingent or fixed, liquidated or unliquidated, accrued or unaccrued, asserted or unasserted, including, but not limited to, any claim and/or claim of damages or other relief for tort, breach of contract, personal injury, negligence, age discrimination under the Age Discrimination in Employment Act of 1967 (as amended), employment discrimination prohibited by other federal, state or local laws including sex, race, national origin, marital status, age, handicap, height, weight, or religious discrimination, and any other claims of unlawful employment practices or any other unlawful criterion or circumstance which Executive and Releasors had, now have or may have in the future against each or any of TCF, its parent, divisions, affiliates and related companies or entities, regardless of its or their form of business organization (the “Company Entities”), any predecessors, successors, joint ventures, and parents of any Company Entity, and any and all of their respective past or present directors, officers, shareholders, partners, employees, consultants, independent contractors, trustees, administrators, insurers, agents, attorneys, representative and fiduciaries, successors and assigns including without limitation all persons acting by, through, under or in concert with any of them arising out of or relating to his employment relationship with TCF, its predecessors, successors or affiliates and the termination thereof; provided, however, that Executive expressly does not release, relinquish or in any way diminish his rights or claims arising from or related to (i) indemnification under the provisions of the Articles of Incorporation or Bylaws of TCF, the Bank, the Merger Agreement (as defined in the Retention Agreement) or any indemnification agreement entered into between Executive and TCF, the Bank or any Affiliates, including any and all rights thereto under applicable law or any rights with respect to coverage under any directors’ and officers’ insurance policies, (ii) any obligation to Executive under the Retention Agreement or this Release that is unsatisfied or continues following Executive’s termination, (iii) any claims for vested benefits under any employee benefit plan of TCF or its Affiliates, (iv) any claim Executive may have as the holder or beneficial owner of securities (or other rights relating to securities) of TCF, or (v) any claims that may arise in the future from events or actions occurring after the date of termination of employment or any claims that Executive cannot by law waive or release. Notwithstanding anything in this Release to the contrary, this Release shall not relinquish, diminish, or in any way affect any rights or claims of Executive arising out of any breach by TCF of this Release.

(b)Executive acknowledges that he has read this Release carefully and understands all of its terms.


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(c)Executive understands and agrees that he has been advised to consult with an attorney prior to executing this Release.

(d)Executive understands that he is entitled to consider this Release for at least twenty-one (21) days before signing the Release. However, after due deliberation, Executive may elect to sign this Release without availing himself of the opportunity to consider its provisions for at least twenty-one (21) days. Executive hereby acknowledges that any decision to shorten the time for considering this Release prior to signing it is voluntary, and such decision is not induced by or through fraud, misrepresentation, or a threat to withdraw or alter the provisions set forth in this Release in the event Executive elected to consider this Release for at least twenty-one (21) days prior to signing the Release.

(e)Executive understands that he may revoke this Release as it relates to any potential claim that could be brought or filed under the Age Discrimination in Employment Act 29 U.S.C. §§ 621-634, within seven (7) days after the date on which he signs this Release, and that this Release as it relates to such a claim does not become effective until the expiration of the seven (7)-day period. In the event that Executive wishes to revoke this Release within the seven (7)-day period, Executive understands that he must provide such revocation in writing to the then Chief Executive Officer at TCF Financial Corporation, 2301 W. Big Beaver Rd., Troy, MI 48084.

(f)In agreeing to sign this Release, Executive is doing so voluntarily and agrees that he has not relied on any oral statements or explanations made by TCF or its representatives.

(g)This Release shall not be construed as an admission of wrongdoing by either Executive or TCF.

4.Notices. Every notice relating to this Release shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to TCF shall be delivered to TCF’s Chief Executive Officer at TCF Financial Corporation, 2301 W. Big Beaver Road, Troy, MI 48084. All notices by TCF to Executive shall be delivered to Executive personally or addressed to Executive at Executive’s last residence address as then contained in the records of TCF or such other address as Executive may designate. Either party by notice to the other may designate a different address to which notices shall be addressed. Any notice given by TCF to Executive at Executive’s last designated address shall be effective to bind any other person who shall acquire rights hereunder.

5.Governing Law. To the extent not preempted by federal law, this Release shall be governed by and construed in accordance with the laws of the State of Michigan, without giving effect to conflicts of laws.

6.Counterparts. This Release may be executed in two (2) or more counterparts, all of which when taken together shall be considered one (1) and the same Release and shall become effective when the counterparts have been signed by each party and delivered to the other party; it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof.

3




7.Entire Agreement. This Release, when aggregated with the Retention Agreement, contains the entire understanding of the parties with respect to the subject matter hereof and together supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Release. For clarity, the parties agree and acknowledge that execution of this Release in no way affects Executive’s current status as a director of TCF or any benefits to which he may be entitled on account of such role.

IN WITNESS WHEREOF, the parties hereto have executed this Release as of the day and year first written above.
        
/s/ David T. Provost David T. Provost, Executive
TCF FINANCIAL CORPORATION

/s/ Joseph T. Green         
By:     Joseph T. Green    
Its:    EVP and General Counsel    




4



WAIVER OF 21-DAY NOTICE PERIOD
I have been provided with the General Release Agreement (“Agreement”) between TCF Financial Corporation (collectively with all of its affiliates, the “Corporation”) and David T. Provost (“Executive”).
I understand that I have twenty-one (21) days from the date the Agreement was presented to me to consider whether or not to sign the Agreement. I further understand that I have the right to seek counsel prior to signing the Agreement.
I am knowingly and voluntarily signing and returning the Agreement prior to the expiration of the twenty-one (21)-day consideration period. I understand that I have seven (7) days from signing the Agreement to revoke the Agreement, by delivering a written notice of revocation to the Chief Executive Officer, TCF Financial Corporation, 2301 W. Big Beaver Rd., Troy, MI 48084.
Dated:    May 8, 2020
        
/s/ David T. Provost
David T. Provost, Executive


5


Exhibit 31.1
CERTIFICATION
I, Craig R. Dahl, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of TCF Financial Corporation for the quarter ended March 31, 2020;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 8, 2020
 
/s/ Craig R. Dahl
 
 
Craig R. Dahl
 
 
Chief Executive Officer and President
 
 
(Principal Executive Officer)
 





Exhibit 31.2
CERTIFICATION
I, Dennis L. Klaeser, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of TCF Financial Corporation for the quarter ended March 31, 2020;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 8, 2020
 
/s/ Dennis L. Klaeser
 
 
Dennis L. Klaeser
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 




Exhibit 32.1
TCF FINANCIAL CORPORATION
STATEMENT PURSUANT TO 18 U.S.C. §1350

I, Craig R. Dahl, Chief Executive Officer and President of TCF Financial Corporation, a Michigan corporation (the “Company”), hereby certify as follows:
1.
This statement is provided pursuant to 18 U.S.C. § 1350 in connection with the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Periodic Report”);
2.
The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
3.
The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods indicated therein.
Date: May 8, 2020
 
/s/ Craig R. Dahl
 
 
Craig R. Dahl
 
 
Chief Executive Officer and President
 
 
(Principal Executive Officer)
 
*
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TCF Financial Corporation and will be retained by TCF Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.






Exhibit 32.2
TCF FINANCIAL CORPORATION
STATEMENT PURSUANT TO 18 U.S.C. §1350

I, Dennis L. Klaeser, Executive Vice President and Chief Financial Officer of TCF Financial Corporation, a Michigan corporation (the “Company”), hereby certify as follows:
1.
This statement is provided pursuant to 18 U.S.C. § 1350 in connection with the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Periodic Report”);
2.
The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
3.
The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods indicated therein.
Date: May 8, 2020
 
/s/ Dennis L. Klaeser
 
 
Dennis L. Klaeser
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
*
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TCF Financial Corporation and will be retained by TCF Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.