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Merger (Tables)

9 Months Ended

Sep. 30, 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.



(In thousands)	TCF Financial Ownership and Market Value Table
	Number of Chemical Outstanding Shares	Percentage Ownership		Market Value at $42.04 Chemical Share Price
Chemical shareholders	71,559	46.62	%	$	3,008,330
Legacy TCF shareholders	81,920	53.38		3,443,938
Total	153,479	100		$	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):



(In thousands)	Hypothetical Legacy TCF Ownership
	Number of Legacy TCF Outstanding Shares	Percentage Ownership
Chemical shareholders	140,836	46.62	%
Legacy TCF shareholders	161,229	53.38
Total	302,065	100	%

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 (amounts in thousands except per share data).



(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

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. Subsequent adjustments to fair value, if necessary, will be reflected in our future filings. These adjustments include: (i) changes in the estimated fair value of loans acquired, (ii) changes in the estimated fair value of intangible assets acquired, (iii) 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 (iv) 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:
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	15,726,213
Premises and equipment	140,219
Loan servicing rights	59,567
Other intangible assets	201,568
Net deferred tax asset⁽¹⁾	49,345
Other assets	553,796
Total assets acquired	21,743,574
Fair value of liabilities assumed:
Deposits	16,418,019
Short-term borrowings	2,629,426
Long-term borrowings	442,323
Other liabilities	345,604
Total liabilities assumed	19,835,372
Fair value of net identifiable assets	1,908,202
Goodwill resulting from Merger⁽²⁾	$	1,110,354


(1)	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.


(2)	The goodwill recorded was primarily attributable to the synergies and economies of scale expected from combining the operations of Legacy TCF and Chemical.

Summary of PCI Loans

Information regarding acquired loans included in net loans and leases acquired at the Merger Date was as follows:



(In thousands)
PCI loans:
Contractually required payments receivable	$	458,374
Nonaccretable difference	(105,031		)
Expected cash flows	353,343
Accretable yield	39,733
Fair value of PCI loans	$	313,610

Purchased nonimpaired loans and leases:
Unpaid principal balance	$	15,636,020
Fair value discount	(223,417		)
Fair value at acquisition	15,412,603
Total fair value at acquisition	$	15,726,213

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

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 nine months ended September 30, 2019:



(In thousands)
Business combination
Fair value of tangible assets acquired	$	21,482,439
Goodwill, loan servicing rights and other identifiable intangible assets acquired	1,371,489
Liabilities assumed	19,835,372
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, 2018 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans, 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, 2018. Merger-related expenses incurred by TCF during the three and nine months ended September 30, 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 2018. Anticipated cost savings that have not yet been realized are also not reflected in the pro forma amounts for the three and nine months ended September 30, 2019 and 2018.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2019		2018		2019		2018
Net interest income and other noninterest income	$	536,165	$	570,396	$	1,654,571	$	1,693,537
Net income	125,560		156,977		435,003		434,686
Net income available to common shareholders	123,066		154,483		427,522		422,111
Earnings per share:
Basic	$	0.81	$	1.00	$	2.79	$	2.71
Diluted	0.81		0.99		2.77		2.69