Loans and Leases

9 Months Ended

Sep. 30, 2019

Loans and leases were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Commercial loan and lease portfolio:
Commercial and industrial	$	10,810,534	$	6,220,632
Commercial real estate	8,876,779		2,908,313
Lease financing	2,594,373		2,530,163
Total commercial loan and lease portfolio	22,281,686		11,659,108
Consumer loan portfolio:
Residential mortgage	6,057,404		2,335,835
Consumer installment	1,562,252		2,003,572
Home equity	3,609,410		3,074,505
Total consumer loan portfolio	11,229,066		7,413,912
Total loans and leases⁽¹⁾	$	33,510,752	$	19,073,020


(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 loan and lease adjustments was a net deferred cost of $234.4 million and $1.5 million at September 30, 2019 and December 31, 2018, respectively.

Acquired Loans and Leases TCF acquired loans and leases at fair value in the Merger and in previous acquisitions completed by Legacy TCF. Certain loans acquired were classified as PCI and are accounted for under ASC 310-30, which recognizes the expected shortfall of expected future cash flows, as compared to the contractual amount due, as nonaccretable difference. Any excess of the net present value of expected future cash flows over the acquisition date fair value is recognized as the accretable yield. The accretable yield is recognized over the expected remaining life of the acquired loan. In the event an acquired loan is renewed or extended, the loan continues to be accounted for as an acquired loan in accordance with ASC 310-30.

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



	At or For the Three Months Ended September 30,						At or For the Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Balance of PCI loans, beginning of period	$	2,273		$	7,033		$	3,816		$	11,844
Accretable Yield
Balance, beginning of period	$	401		$	439		$	961		$	1,051
Addition attributable to the Merger	39,733			—			39,733			—
Accretion recognized in interest income	(4,312		)	(38		)	(5,015		)	(188		)
Net reclassification (to) from nonaccretable difference	(517		)	—			179			370
Payments received	(824		)	26			(1,377		)	(806		)
Balance, end of period	$	34,481		$	427		$	34,481		$	427
Balance of PCI loans, end of period	$	293,713		$	4,802		$	293,713		$	4,802

Leases Effective January 1, 2019, TCF adopted ASU No. 2016-02, Leases (Topic 842) and related ASUs on a modified retrospective basis, electing the practical expedients and optional transition method. As such, the following leasing disclosures include information at or for the three and nine months ended September 30, 2019.

The components of the net investment in direct financing and sales-type leases were as follows:



(In thousands)	At September 30, 2019
Carrying amount	$	2,682,097
Unguaranteed residual assets	148,669
Net direct fees and costs and unearned income	(236,393		)
Total net investment in direct financing and sales-type leases	$	2,594,373

The carrying amount of the direct financing and sales-type leases subject to residual value guarantees was $263.3 million at September 30, 2019.

The components of total lease income were as follows:



	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2019
Interest income - loans and leases:
Interest income on net investment in direct financing and sales-type leases	$	32,832	$	98,116
Leasing revenue (noninterest income):
Lease income from operating lease payments	25,444		76,140
Profit (loss) recorded on commencement date on sales-type leases	7,983		22,289
Gains (losses) on sales of leased equipment	6,163		18,603
Leasing revenue	39,590		117,032
Total lease income	$	72,422	$	215,148

Lease financing equipment depreciation on equipment leased to others was $19.4 million and $57.8 million for the three and nine months ended September 30, 2019, respectively. The net book value of equipment leased to others and related initial direct costs under operating leases was $285.4 million at September 30, 2019.

Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at September 30, 2019 were as follows:



(In thousands)
Remainder of 2019	$	51,851
2020	333,516
2021	459,359
2022	554,951
2023	563,752
Thereafter	612,063
Equipment under leases not yet commenced	47,948
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases	2,623,440
Third-party residual value guarantees	58,657
Total carrying amount of direct financing and sales-type leases	$	2,682,097

Undiscounted future minimum lease payments expected to be received for operating leases at September 30, 2019 were as follows:



(In thousands)
Remainder of 2019	$	20,087
2020	71,120
2021	48,885
2022	25,915
2023	9,777
Thereafter	4,717
Total undiscounted future minimum lease payments	$	180,501

Loan Sales The following table summarizes the net gains on sales of loans and leases. TCF retains servicing on a majority of loans sold. See Note 11. Loan Servicing Rights for further information.



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2019			2018			2019			2018
Sale proceeds, net	$	472,800		$	410,389		$	1,066,576		$	940,134
Recorded investment in loans and leases sold, including accrued interest	458,697			393,078			1,033,961			911,218
Interest-only strips at initial value and other	(20,087		)	(8,809		)	(19,241		)	(4,016		)
Net (losses) gains on sales of loans and leases	$	(5,984	)	$	8,502		$	13,374		$	24,900

Interest-only strips related to loan sales were as follows:



(In thousands)	At September 30, 2019		At December 31, 2018
Interest-only strips	$	14,078	$	16,835

TCF recorded $22 thousand and $43 thousand of impairment charges on interest-only strips during the three and nine months ended September 30, 2019, respectively, and $45 thousand and $0.7 million during the same periods in 2018.