EX-99.3 5 d19359dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of Huntington Bancshares Incorporated (“Huntington”) and TCF Financial Corporation (“TCF”) as an acquisition by Huntington of TCF. The merger of TCF with and into Huntington (the “merger”) was announced on December 13, 2020, and provides that each share of common stock, par value $1.00 per share, of TCF (“TCF common stock”) issued and outstanding immediately prior to the effective time of the merger (the “effective time”) (other than certain shares held by Huntington or TCF) will be automatically converted into the right to receive 3.0028 shares (the “exchange ratio” and such shares, the “merger consideration”) of common stock, par value $0.01 per share, of Huntington (“Huntington common stock”). In addition, at the effective time, each share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock, no par value, of TCF (“ TCF series C preferred stock”) issued and outstanding immediately prior to the effective time will be automatically converted into the right to receive one share of a newly created series of preferred stock of Huntington (the “new Huntington preferred stock”).

The unaudited pro forma condensed combined financial information have been prepared to give effect to the following:

 

   

The acquisition of TCF by Huntington under the provision of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, ASC 805, “Business Combinations” where the assets and liabilities of TCF will be recorded by Huntington at their respective fair values as of the date the merger is completed;

 

   

The distribution of shares of Huntington common stock to TCF’s shareholders in exchange for shares of TCF common stock (based upon a 3.0028 exchange ratio);

 

   

Certain reclassifications to conform historical financial statement presentation of TCF to Huntington; and

 

   

Transaction costs in connection with the merger.

The following unaudited pro forma condensed combined financial information and related notes are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of Huntington and the related notes included in Huntington’s Annual Report on Form 10-K for the year ended December 31, 2019, and the historical unaudited condensed consolidated financial statements of Huntington and the related notes included in Huntington’s Quarterly Report on Form 10-Q for the period ended September 30, 2020, and (ii) the historical audited consolidated financial statements of TCF and the related notes included in Exhibit 99.1 to this current report on Form 8-K, and the historical unaudited consolidated financial statements of TCF and the related notes included in Exhibit 99.2 to this current report on Form 8-K.

The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2020 and for the year ended December 31, 2019 combine the historical consolidated income statements of Huntington and TCF, giving effect to the merger as if it had been completed on January 1, 2019. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2020 combines the historical consolidated balance sheets of Huntington and TCF, giving effect to the merger as if it had been completed on September 30, 2020.

The unaudited pro forma condensed combined financial information is provided for illustrative information purposes only. The unaudited pro forma condensed combined financial information is not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The pro forma financial information has been prepared by Huntington in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures About Acquired and Disposed Businesses, as adopted by the SEC on May 21, 2020.

The unaudited pro forma condensed combined financial information also does not consider any potential effects of changes in market conditions on revenues, expense efficiencies, asset dispositions, and share repurchases, among other factors. In addition, as explained in more detail in the accompanying notes, the preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the merger.


As of the date of January 28, 2021, Huntington has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the TCF assets to be acquired or liabilities to be assumed, other than a preliminary estimate for intangible assets and certain financial assets and financial liabilities. Accordingly, apart from the aforementioned, certain TCF assets and liabilities are presented at their respective carrying amounts and should be treated as preliminary values. A final determination of the fair value of TCF’s assets and liabilities will be based on TCF’s actual assets and liabilities as of the date on which the closing of the merger occurs (the “closing date”) and, therefore, cannot be made prior to the completion of the merger. In addition, the value of the merger consideration to be paid by Huntington in shares of Huntington common stock upon the completion of the merger will be determined based on the closing price of Huntington common stock on the closing date and the number of issued and outstanding shares of TCF common stock immediately prior to the closing of the merger. Actual adjustments may differ from the amounts reflected in the unaudited pro forma condensed combined financial information, and the differences may be material.

Further, Huntington has not identified all adjustments necessary to conform TCF’s accounting policies to Huntington’s accounting policies. Upon completion of the merger, or as more information becomes available, Huntington will perform a more detailed review of TCF’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the financial information of Huntington after giving effect to the merger (the “combined company”).

As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information. Huntington estimated the fair value of certain TCF assets and liabilities based on a preliminary valuation analysis, due diligence information, information presented in TCF’s SEC filings and other publicly available information. Until the merger is completed, both companies are limited in their ability to share certain information.

Upon completion of the merger, a final determination of the fair value of TCF’s assets acquired and liabilities assumed will be performed. Any changes in the fair values of the net assets or total purchase consideration as compared with the information shown in the unaudited pro forma condensed combined financial information may change the amount of the total purchase consideration allocated to goodwill and other assets and liabilities and may impact the combined company’s statement of income. The final purchase consideration allocation may be materially different than the preliminary purchase consideration allocation presented in the unaudited pro forma condensed combined financial information.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2020

 

(dollars in millions,

except per share data)

               Transaction Accounting Adjustments      Pro forma
Condensed
Combined
 
   Historical
Huntington
    Historical
TCF
    Reclassifications
Note 2
    Pro forma
Adjustments
    Note 4  

Assets

             

Cash and due from banks

   $ 1,029     $ 538     $ —       $ —          $ 1,567  

Interest-bearing deposits in the Federal Reserve Bank

     5,246       1,233              6,479  

Interest-bearing deposits in banks

     109       —                109  

Trading account securities

     54       —                54  

Available-for-sale securities

     14,807       7,446              22,253  

Held-to-maturity securities

     8,557       170         10       A        8,737  

Other securities

     421       301              722  

Loans held for sale

     1,303       460              1,763  

Loans and Leases

     81,156       34,344         146       B        115,646  

Allowance for loan and lease losses

     (1,796     (515       (333     C        (2,644
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net loans and leases

     79,360       33,829       —         (187        113,002  

Bank owned life insurance

     2,567       —         156            2,723  

Premises and equipment

     752       470         (89     D        1,133  

Goodwill

     1,990       1,313         893       E        4,196  

Servicing rights and other intangible assets

     419       190         24       F        633  

Other assets

     3,502       1,616       (156     (3     G        4,959  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total Assets

   $    120,116     $   47,566     $ —       $ 648        $    168,330  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Liabilities and Shareholders’ Equity

             

Deposits

   $ 95,154     $ 39,172     $ —       $ 20       H      $ 134,346  

Short-term borrowings

     222       655              877  

Long-term debt

     9,174       872         29       I        10,075  

Other liabilities

     2,649       1,208         9       J        3,866  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total Liabilities

     107,199       41,907       —         58          149,164  

Shareholder’s Equity:

             

Preferred stock

     2,191       169         15       K        2,375  

Common stock

     10       152         (147     L        15  

Capital surplus

     8,766       3,451         2,949       M        15,166  

Less treasury shares, at cost, and other

     (59     (27       27          (59

Accumulated other comprehensive gain (loss)

     257       192         (192     N        257  

Retained earnings

     1,752       1,700         (2,062     O        1,390  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     12,917       5,637       —         590          19,144  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Noncontrolling interests in consolidated subsidiaries

     —         22         —            22  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total Equity Capital

     12,917       5,659       —         590          19,166  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 120,116     $ 47,566     $ —       $ 648        $ 168,330  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information


UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

For the Nine Months Ended September 30, 2020

 

(dollars in millions,

except per share data)

                Transaction Accounting Adjustments      Pro forma
Condensed
Combined
 
   Historical
Huntington
    Historical
TCF
     Reclassifications
Note 2
    Pro forma
Adjustments
    Note 5  

Interest and fee income:

              

Loans and leases

   $ 2,327     $ 1,209      $ —       $ (50     A      $ 3,486  

Investment securities

     407       121        —         (2     B        526  

Other

     35       24        —         —            59  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total interest income

     2,769       1,354        —         (52        4,071  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Interest expense:

              

Deposits

     182       146        —         (1     C        327  

Borrowings

     188       51        —         11       D        250  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total interest expense

     370       197        —         10          577  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Net interest income

     2,399       1,157        —         (62        3,494  

Provision for credit losses

     945       245        —         —            1,190  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Net interest income after provision for credit losses

     1,454       912        —         (62        2,304  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Service charges on deposit accounts

     223       83        —         —            306  

Cards and payment processing income

     183       66        —         —            249  

Trust and investment management services

     140       19        —         —            159  

Mortgage banking income

     277       10        —         —            287  

Leasing income

     —         103        —         —            103  

Capital markets fees

     91       —          15       —            106  

Insurance income

     72       —          —         —            72  

Bank owned life insurance income

     49       —          4       —            53  

Gain on sale of loans and leases

     30       73        —         —            103  

Net (losses) gains on sales of securities

     (1     2        —         —            1  

Other income

     118       33        (19     —            132  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total noninterest income

     1,182       389        —         —            1,571  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Personnel costs

     1,267       512        —         —            1,779  

Outside data processing and other services

     273       —          63       —            336  

Equipment

     132       160        (70     —            222  

Net occupancy

     119       —          70       (2     F        187  

Lease financing equipment depreciation

     —         55        —         —            55  

Professional services

     34       —          18       —            52  

Amortization of intangibles

     31       —          16       5       G        52  

Marketing

     23       —          21       —            44  

Deposit and other insurance expense

     24       —          18       —            42  

Merger-related expenses

     —         172        —         —            172  

Other expense

     136       249        (136     —            249  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total noninterest expense

     2,039       1,148        —         3          3,190  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Income before income taxes

     597       153        —         (65        685  

Provision for income taxes

     96       15        —         (15     J        96  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Income before minority interest

     501       138        —         (50        589  

Income attributable to minority interest

     —         6        —         —            6  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net income

     501       132        —         (50        583  

Dividends on preferred shares

     65       7        —         —            72  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Net income applicable to common shares

   $ 436     $ 125      $ —       $ (50      $ 511  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Earnings per common share

   $ 0.43       0.82             $ 0.35  

Diluted earnings per common share

     0.42       0.82             $ 0.34  

Weighted average common shares

     1,017,052       151,761            K        1,472,761  

Diluted average common shares

     1,031,573       151,827            K        1,487,479  

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information


UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

For the Year Ended December 31, 2019

 

(dollars in millions,

except per share data)

                Transaction Accounting Adjustments      Pro forma
Condensed
Combined
 
   Historical
Huntington
    Historical
TCF
     Reclassifications
Note 2
    Pro forma
Adjustments
    Note 5  

Interest and fee income:

              

Loans and leases

   $ 3,541     $ 1,431      $ —         19       A      $ 4,991  

Investment securities

     596       118        —         (4     B        710  

Other

     64       38        —         —            102  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total interest income

     4,201       1,587        —         15          5,803  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Interest expense:

              

Deposits

     585       226        —         18       C        829  

Borrowings

     403       72        —         10       D        485  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total interest expense

     988       298        —         28          1,314  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Net interest income

     3,213       1,289        —         (13        4,489  

Provision for credit losses

     287       65        —         330       E        682  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Net interest income after provision for credit losses

     2,926       1,224        —         (343        3,807  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Service charges on deposit accounts

     372       128        —         —            500  

Cards and payment processing income

     246       87        —         —            333  

Trust and investment management services

     178       10        —         —            188  

Mortgage banking income

     167       21        —         —            188  

Leasing income

     —         164        —         —            164  

Capital markets fees

     123       —          (7     —            116  

Insurance income

     88       —          —         —            88  

Bank owned life insurance income

     66       —          2       —            68  

Gain on sale of loans and leases

     55       26        —         —            81  

Net (losses) gains on sales of securities

     (24     7        —         —            (17

Other income

     183       22        5       —            210  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total noninterest income

     1,454       465        —         —            1,919  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Personnel costs

     1,654       577        —         —            2,231  

Outside data processing and other services

     346       —          59       —            405  

Equipment

     163       190        (76     —            277  

Net occupancy

     159       —          75       (3     F        231  

Lease financing equipment depreciation

     —         76        —         —            76  

Professional services

     54       —          26       —            80  

Amortization of intangibles

     49       —          12       20          81  

Marketing

     37       —          28       —            65  

Deposit and other insurance expense

     34       —          18       —            52  

Merger-related expenses

     —         172        —         87          259  

Other expense

     225       317        (142     50          450  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total noninterest expense

     2,721       1,332        —         154          4,207  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Income before income taxes

     1,659       357        —         (497        1,519  

Provision for income taxes

     248       50        —         (111        187  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Income before minority interest

     1,411       307        —         (386        1,332  

Income attributable to minority interest

     —         12        —         —            12  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net income

     1,411       295        —         (386        1,320  

Dividends on preferred shares

     74       10        —         —            84  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Net income applicable to common shares

   $ 1,337     $ 285      $ —       $ (386      $ 1,236  
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Earnings per common share

   $ 1.29     $ 2.56             $ 0.90  

Diluted earnings per common share

     1.27       2.55             $ 0.89  

Weighted average common shares

     1,038,840       111,604            K        1,373,965  

Diluted average common shares

     1,056,079       111,818            K        1,391,847  

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information


NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1. Basis of Presentation

The accompanying unaudited pro forma condensed combined financial information and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined income statement for the nine months ended September 30, 2020 and for the year ended December 31, 2019 combine the historical consolidated income statement of Huntington and TCF, giving effect to the merger as if it had been completed on January 1, 2019. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2020 combines the historical consolidated balance sheets of Huntington and TCF, giving effect to the merger as if it had been completed on September 30, 2020.

The unaudited pro forma condensed combined financial information and explanatory notes have been prepared to illustrate the effects of the merger involving Huntington and TCF under the acquisition method of accounting with Huntington treated as the acquirer. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined company. Under the acquisition method of accounting, the assets and liabilities of TCF, as of the effective time, will be recorded by Huntington at their respective fair values, and the excess of the merger consideration over the fair value of TCF’s net assets will be allocated to goodwill.

The merger provides for TCF common shareholders to receive 3.0028 shares of Huntington common stock for each share of TCF common stock they hold immediately prior to the merger. Based on the closing trading price of shares of Huntington common stock on the Nasdaq Global Select Market on January 22, 2021, the value of the merger consideration per share of TCF common stock was $41.56. In addition, each share of TCF’s series C preferred stock will be converted into the right to receive a share of new Huntington preferred stock.

The pro forma allocation of the purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but are not be limited to, changes in (i) TCF’s balance sheet through the effective time; (ii) the aggregate value of merger consideration paid if the price of shares of Huntington common stock varies from the assumed $13.84 per share, which represents the closing share price of Huntington common stock on January 22, 2021; (iii) total merger related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.

The accounting policies of both Huntington and TCF are in the process of being reviewed in detail. Upon completion of such review, additional conforming adjustments or financial statement reclassification may be necessary.

Note 2. Reclassification Adjustments

During the preparation of the unaudited pro forma condensed combined financial information, management performed a preliminary analysis of TCF’s financial information to identify differences in accounting policies and differences in balance sheet and income statement presentation as compared to the presentation of Huntington. At the time of preparing the unaudited pro forma condensed combined financial information, Huntington had not identified all adjustments necessary to conform TCF’s accounting policies to Huntington’s accounting policies. The adjustments represent Huntington’s best estimates based upon the information currently available to Huntington and could be subject to change once more detailed information is available.


Note 3. Preliminary Purchase Price Allocation

The following table summarizes the determination of the purchase price consideration with a sensitivity analysis assuming a 10% increase and 10% decrease in the price per share of Huntington common stock from the January 22, 2021 baseline with its impact on the preliminary goodwill.

 

(dollars in millions, except per share data, shares in thousands)    January 22, 2021      10% Increase      10% Decrease  

Shares of TCF

     152,514        152,514        152,514  

Exchange ratio

     3.0028        3.0028        3.0028  
  

 

 

    

 

 

    

 

 

 

Huntington shares to be issued

     457,969        457,969        457,969  

Price per share of Huntington common stock on January 22, 2021

   $ 13.84      $ 15.22      $ 12.46  
  

 

 

    

 

 

    

 

 

 

Preliminary consideration for common stock

   $ 6,338      $ 6,970      $ 5,706  

Consideration for equity awards

     52        58        47  

Preferred stock fair value adjustment

     15        15        15  
  

 

 

    

 

 

    

 

 

 

Total pro forma purchase price consideration

   $ 6,405      $ 7,043      $ 5,768  
  

 

 

    

 

 

    

 

 

 

Preliminary goodwill

   $ 2,206      $ 2,844      $ 1,569  
  

 

 

    

 

 

    

 

 

 

TCF Net Assets at Fair Value

        

Assets

        

Cash and deposits

         $ 1,771  

Investment and other securities

           7,927  

Loans held for sale

           460  

Loans and leases

           33,972  

Core deposit and other intangible assets

           214  

Other assets

           1,994  
        

 

 

 

Total Assets

           46,338  

Liabilities and Equity

        

Deposits

           39,192  

Short-term borrowings

           655  

Long-term debt

           901  

Other liabilities

           1,185  
        

 

 

 

Total liabilities

           41,933  

Preferred stock

           184  

Non-controlling interest

           22  
        

 

 

 

Total liabilities and equity

           42,139  

Net assets acquired

           4,199  
        

 

 

 

Preliminary goodwill

         $ 2,206  
        

 

 

 

Note 4. Pro Forma Adjustments to the Unaudited Condensed Combined Balance Sheets

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All taxable adjustments were calculated using a 22.4% tax rate, which represents the blended statutory rate, to arrive at deferred tax asset or liability adjustments. All adjustments are based on preliminary assumptions and valuations, which are subject to change.

 

A.

Adjustment to securities classified as held-to maturity to reflect the estimated fair value of the acquired investment securities.


B.

Adjustment to loans and leases reflect estimated fair value adjustments, which include lifetime credit loss expectations for loans and leases, current interest rates and liquidity. The adjustment includes the following:

 

     September 30, 2020  
     (dollars in millions)  

Reversal of historical TCF loan and lease fair value adjustments

   $ 132  

Estimate of lifetime credit losses on acquired loans and leases

     (848

Estimate of fair value related to current interest rates and liquidity

     344  
  

 

 

 

Net fair value pro forma adjustments

     (372

Gross up of PCD loans and leases for credit mark - See C below for Allowance

     518  
  

 

 

 

Cumulative pro forma adjustments to loans and leases

   $ 146  
  

 

 

 

For purposes of pro forma presentation, the fair value adjustment is being recognized over a weighted average period of 2 years for commercial loans and 5 years for consumer loans in Interest and Fee Income— Loans and Leases.

 

C.

Adjustments to the allowance for loan and lease losses include the following:

 

     September 30, 2020  
     (dollars in millions)  

Reversal of historical TCF allowance for loan and lease losses

   $ (515

Estimate of lifetime credit losses for PCD loans and leases

     518  

Estimate of lifetime credit losses for non-PCD loans and leases

     330  
  

 

 

 

Net change in allowance for loan and lease losses

   $ 333  
  

 

 

 

 

D.

Adjustment to property and equipment to reflect the estimated fair value of acquired premises and equipment.

 

E.

Eliminate the historical TCF goodwill of $1.3 billion at the closing date and record estimated goodwill associated with the merger of $2.2 billion.

 

F.

Eliminate the historical TCF other intangibles of $152 million and record an estimated core deposit intangible of $164 million and a trust relationship intangible of $12 million related to the merger.

 

G.

Adjustment to other assets to reflect the estimated fair value of other real estate owned.

 

H.

Adjustment to deposits to reflect the estimated fair value of certificates of deposits.

 

I.

Adjustment to long-term debt to reflect the estimated fair value of TCF long-term debt.

 

J.

Adjustment to other liabilities for the following:

 

     September 30, 2020  
     (dollars in millions)  

Estimate of the fair value of accrued expenses and other liabilities

   $ 14  

Foundation contribution

     50  

Merger-related transaction costs

     87  

Deferred taxes related to acquisition accounting adjustments

     (142
  

 

 

 

Net other liabilities transaction accounting adjustments

   $ 9  
  

 

 

 

 

K.

Adjustment to preferred shares to reflect the estimated fair value of the TCF series C preferred stock and its conversion to new Huntington preferred stock.

 

L.

Adjustments to common stock to eliminate TCF common stock of $152 million par value and record the issuance of Huntington common stock to TCF common shareholders of $5 million par value.


M.

Adjustments to capital surplus to eliminate TCF capital surplus of $3.5 billion and record the issuance of Huntington common stock in excess of par value to TCF common shareholders of $6.4 billion.

 

N.

Adjustment to eliminate TCF accumulated other comprehensive gain of $192 million.

 

O.

Adjustment to eliminate TCF retained earnings of $1.7 billion offset by purchase accounting adjustments included herein.

Note 5. Pro Forma Adjustments to the Unaudited Condensed Combined Income Statements

 

A.

Net adjustments to interest income of $(50) million and $19 million for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, respectively, to eliminate TCF accretion of discounts on previously acquired loans and leases and record the estimated amortization of the net premium on acquired loans and leases.

 

B.

Net adjustments to interest income of $(2) million and $(4) million for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, respectively, to record the estimated amortization of the premium on acquired held-to-maturity securities.

 

C.

Net adjustment to reflect interest expense on deposits of $(1) million and $18 million for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, respectively, to eliminate the TCF discount accretion on previously acquired deposits and to record the estimated amortization of the deposit premium on acquired interest-bearing deposits.

 

D.

Net adjustment to reflect interest expense on borrowings of $11 million and $10 million for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, respectively, to eliminate the TCF discount accretion on previously acquired debt and to record the estimated amortization of premium on long-term debt.

 

E.

Adjustment to record provision expense on TCF’s non-PCD loans of $330 million.

 

F.

Adjustment to occupancy expense of $(2) million and $(3) million for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, respectively, to reflect reduction of depreciation expense as a result of estimated fair value on acquired property. Average life of the depreciable assets will be twelve years.

 

G.

Net adjustments to intangible amortization of $5 million and $20 million for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, respectively, to eliminate TCF amortization on other intangible assets and record estimated amortization of acquired other intangible assets. Core deposit intangibles will be amortized using the sum-of-the-years-digits method over ten years. Trust relationship intangible assets will be amortized using the sum-of-the-year-digits over twelve years.

 

                   Amortization Expense  
(dollars in millions)    Estimated
Fair
Value
     Useful Life
(years)
     Year ended
December 31, 2019
    Nine-month
period ended
September 30, 2020
 

Core deposit intangible

   $ 164        10      $ 30     $ 20  

Trust relationship intangible

     12        12        2       1  
  

 

 

       

 

 

   

 

 

 
   $ 176           32       21  

Historical amortization expense

           (12     (16
        

 

 

   

 

 

 

Pro forma net adjustment to amortization

         $ 20     $ 5  
        

 

 

   

 

 

 

Amortization for next five years

          

Remainder of 2020

   $ 7          

2021

     25          

2022

     22          

2023

     19          

2024

     16          


H.

Adjustment to reflect the merger-related transaction costs of $87 million.

 

I.

Adjustment to reflect Huntington’s committed contribution of $50 million to establish a new Huntington Donor Advised Fund at the Community Foundation for Southeast Michigan.

 

J.

Adjustment to income tax expense to record the income tax effects of pro forma adjustments at the estimated combined statutory federal and state rate at 22.4%.

 

K.

Adjustments to weighted-average shares of Huntington common stock outstanding to eliminate weighted-average shares of TCF common stock outstanding and record shares of Huntington common stock outstanding, calculated using an exchange ratio of 3.0028 per share for all shares.

Note 6. Potential Divestitures in Connection with the Merger

As part of the initial filing of the application to the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) on January 11, 2021, Huntington and TCF offered to divest TCF branches in four Michigan banking markets with deposits totaling approximately $375 million, based on Summary of Deposit levels reported as of June 30, 2020, to address potential competitive concerns. Because there can be no assurance that the divestiture proposal will be accepted or deemed sufficient by the Federal Reserve Board and the Antitrust Division of the Department of Justice (the “DOJ”), these divestitures are excluded from the unaudited pro forma condensed combined financial information.