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TCF Financial Corporation -- Moody's affirms TCF Financial's ratings (preferred Ba1(hyb)); changes outlook to stable from negative

Rating Action: Moody's affirms TCF Financial's ratings (preferred Ba1 (hyb)); changes outlook to stable from negative

Global Credit Research - 13 Aug 2020

New York, August 13, 2020 -- Moody's Investors Service (Moody's) has affirmed the ratings and assessments of TCF Financial Corporation (TCF) and its bank subsidiary, TCF National Bank, following the affirmation of the bank's baa1 standalone Baseline Credit Assessment (BCA). TCF has a Ba1 (hyb) non-cumulative preferred stock rating. TCF National Bank has deposit ratings of A2/Prime-1, issuer and subordinated debt ratings of Baa2, Counterparty Risk Assessments of A3(cr)/Prime-2(cr) and Counterparty Risk Ratings of Baa1/Prime-2. TCF National Bank's outlook was changed to stable from negative.

While the ratings affirmation reflects Moody's unchanged view of the bank's standalone credit profile, the change in outlook to stable from negative reflects Moody's assessment of reduced integration risks related to TCF's recent merger with Chemical Financial Corporation (Chemical).

Affirmations:

..Issuer: TCF Financial Corporation

....Pref. Stock Non-cumulative, Affirmed Ba1 (hyb)

....Pref. Shelf Non-cumulative, Affirmed (P)Ba1

....Pref. Shelf, Affirmed (P)Baa3

..Issuer: TCF National Bank

....Baseline Credit Assessment, Affirmed baa1

....Adjusted Baseline Credit Assessment, Affirmed baa1

....LT Bank Deposits, Affirmed A2, Stable from Negative

....ST Bank Deposits, Affirmed P-1

....LT Issuer Rating, Affirmed Baa2, Stable from Negative

....Subordinate Regular Bond/Debenture, Affirmed Baa2

....LT Counterparty Risk Assessment, Affirmed A3(cr)

....ST Counterparty Risk Assessment, Affirmed P-2(cr)

....LT Counterparty Risk Rating (Local Currency), Affirmed Baa1

....ST Counterparty Risk Rating (Local Currency), Affirmed P-2

....LT Counterparty Risk Rating (Foreign Currency), Affirmed Baa1

....ST Counterparty Risk Rating (Foreign Currency), Affirmed P-2

Outlook Actions:

..Issuer: TCF National Bank

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

The affirmation of TCF National Bank's BCA and the ratings for both TCF and TCF National Bank was based on TCF's solid balance sheet, which reflects the company's large, low-cost funding base, improved liquidity, stable asset quality and adequate capitalization. The affirmation also reflects TCF's healthy core profitability despite recent pressure from low interest rates and expenses related to the merger between TCF and Chemical in August 2019. TCF's above peer-average growth of certain national lending businesses in recent years and its commercial real estate concentration are credit challenges despite generally good asset quality performance.

The change in outlook to stable from negative reflects Moody's view that TCF's integration with Chemical has been executed well thus far, despite the large size of the transaction and TCF having to perform numerous integration activities during the coronavirus pandemic. Moody's has not observed any major operational missteps during the integration process that have weakened the financial standing or performance of the combined entity. Following the transaction close on 1 August 2019, TCF has maintained asset quality, capital, funding and liquidity levels that are consistent with US peers with a baa1 BCA. The rating outlook had been negative since the merger was announced in January 2019.

Despite the stable outlook, Moody's expects deterioration in TCF's asset quality over the next 12-18 months as a result of the impact of the coronavirus pandemic on the bank's borrowers and the overall economy. TCF is most exposed to asset quality weakening in its retail commercial real estate, hotel and motor coach and shuttle bus portfolios, which accounted for 3.9%, 2.3% and 1.2% of total loans and leases, respectively, at 30 June 2020. However, Moody's expects that TCF's allowance for credit losses (1.42% of total loans at 30 June 2020), its fair value discount on acquired loans ($149 million at 30 June 2020), and its sound capitalization (Common Equity Tier 1 capital ratio of 11.05% at 30 June 2020) are sufficient to absorb potential losses.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade TCF's BCA and ratings if the company demonstrates asset quality and profitability resilience along with maintenance of its capitalization and liquidity, during this period of economic volatility caused by the coronavirus outbreak.

Moody's could downgrade the BCA and ratings if there is a deterioration in TCF's asset quality beyond our current expectations, particularly in its specialty lending portfolios, given their rapid growth in recent years. Weaker capitalization or indications of an increase in risk appetite could also lead to a downgrade.

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joseph Pucella Senior Vice President Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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