Merger (Tables)

12 Months Ended

Dec. 31, 2019

Schedule of Business Acquisitions, by Acquisition

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
	Number of Chemical Outstanding Shares	Percentage Ownership		Market Value at $42.04 Chemical Share Price
Legacy TCF shareholders	81,920,494	53.38	%	$	3,443,938
Chemical shareholders	71,558,755	46.62		3,008,330
Total	153,479,249	100.00		$	6,452,268

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



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

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



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

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

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. We recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates were considered preliminary as of September 30, 2019, and subject to adjustment for up to one year after the Merger Date. While we believe 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 we are able to determine that we have obtained all necessary information about the facts and circumstances that existed as of Merger Date. During the fourth quarter of 2019, we obtained additional information and evidence on certain acquired assets and assumed liabilities and adjusted the estimated fair value accordingly. We anticipate finalizing all valuations and recording 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	15,730,605
Premises and equipment	140,219
Loan servicing rights	59,567
Other intangible assets	159,532
Net deferred tax asset⁽²⁾	61,647
Other assets	552,432
Total assets acquired	21,716,868
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	1,873,435
Goodwill resulting from Merger⁽¹⁾	$	1,145,121

(1)

All amounts were previously reported in the Corporation's Quarterly Report on Form 10-Q for the three- and nine-month periods ended September 30, 2019, with the exception of the following adjustments to fair value based on additional information obtained in the the fourth quarter of 2019: (i) loans and leases ($4.4 million increase), (ii) other intangible assets ($42.0 million decrease), (iii) net deferred tax asset ($12.3 million increase), (iv) other assets ($1.4 million decrease), (v) deposits ($196 thousand increase), (vi) other liabilities ($7.9 million increase) and (vii) goodwill resulting from Merger ($34.8 million increase).


(2)	Net deferred tax asset includes acquisition-related fair value adjustments, loss and tax credit carry forwards, and deferred tax impacts of loan servicing rights and core deposit and customer intangibles.

Summary of PCI Loans

Information regarding acquired loans and leases included in 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	(217,098		)
Fair value at acquisition	15,418,922
Total fair value at acquisition	$	15,730,605

The carrying value and changes in accretable yield of all PCI loans were as follows:



	At or For Year Ended December 31,
(In thousands)	2019			2018
Balance of PCI loans, beginning of period	$	3,817		$	11,844
Accretable Yield
Balance, beginning of period	$	961		$	1,051
Addition attributable to the Merger	38,479			—
Accretion recognized in interest income	(11,453		)	(215		)
Net reclassification (to) from nonaccretable difference	10,091			370
Payments received	(10,445		)	(245		)
Balance, end of period	$	27,633		$	961
Balance of PCI loans, end of period	$	246,786		$	3,817

Schedule of Cash Flow, Supplemental Disclosures

Supplemental disclosures of cash flow information related to investing and financing activities regarding the Merger are as follows for the year ended December 31, 2019:



(In thousands)
Business combination
Fair value of tangible assets acquired	$	21,497,769
Goodwill, loan servicing rights and other identifiable intangible assets acquired	1,364,220
Liabilities assumed	19,843,433
Common stock and stock options converted	3,018,556

Business Acquisition, Pro Forma Information

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, 2017 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 and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2017. Merger-related expenses incurred by TCF during the year ended December 31, 2019 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 2017. Anticipated cost savings that have not yet been realized are also not reflected in the pro forma amounts for the years ended December 31, 2019, 2018 and 2017.



	Year Ended December 31,
(In thousands, except per share data)	2019		2018		2017
Net interest income and other noninterest income	$	2,225,244	$	2,228,154	$	2,086,745
Net income	587,335		590,594		432,128
Net income available to common shareholders	577,360		575,525		406,445
Earnings per share:
Basic	$	3.77	$	3.70	$	2.61
Diluted	3.75		3.67		2.60