Investments in Qualified Affordable Housing Projects, Federal Historical Projects and New Market Tax Credits

9 Months Ended

Sep. 30, 2019

Schedule of Investments [Abstract]

Investments in Qualified Affordable Housing Projects, Federal Historical Projects and New Market Tax Credits

Investments in Qualified Affordable Housing Projects, Federal Historical Projects and New Market Tax Credits

TCF invests in qualified affordable housing projects, federal historical projects, and new market tax credits for the purposes of community reinvestment and to obtain tax credits. Return on TCF'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. TCF 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, TCF amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits. TCF recognized amortization expense of investments in qualified affordable housing projects of $3.6 million and $8.5 million for the three and nine months ended September 30, 2019, respectively, and $2.4 million and $7.2 million for the three and nine months ended September 30, 2018, respectively. Amortization expense was offset by tax credits and other benefits of $4.5 million and $10.5 million for the three and nine months ended September 30, 2019, respectively, and $2.9 million and $8.5 million for the three and nine months ended September 30, 2018, respectively. TCF's remaining investment in qualified affordable housing projects totaled $231.4 million at September 30, 2019 and $90.9 million at December 31, 2018.

Under the equity method, TCF's share of the earnings or losses is included in other noninterest expense. TCF's remaining investment in federal historical projects, all of which were acquired in the Merger, totaled $38.5 million at September 30, 2019.

TCF's unfunded equity contributions relating to investments in qualified affordable housing projects, federal historical projects and new market tax credits are included in other liabilities. TCF's remaining unfunded equity contributions totaled $128.1 million at September 30, 2019 and $56.2 million at December 31, 2018.

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 historical 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 require the managing entity to fail 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.