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Section 1: 10-Q (10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

September 30, 2010

 

or

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-10253

 

 

TCF FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

41-1591444

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

200 Lake Street East, Mail Code EX0-03-A,

Wayzata, Minnesota 55391-1693

(Address and Zip Code of principal executive offices)

 

(952) 745-2760

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x                                    No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes x                                    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o  (Do not check if a smaller reporting company)

Smaller reporting company o

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes o                                    No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Outstanding at

Class

 

October 21, 2010

Common Stock, $.01 par value

 

142,644,421 shares

 

 

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

Part I.

 

Financial Information

 

Pages

 

 

 

 

 

 

 

Item 1. Financial Statements.

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition
at September 30, 2010 and December 31, 2009

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2010 and 2009

 

4

 

 

 

 

 

 

 

Consolidated Statements of Equity for the
Nine Months Ended September 30, 2010 and 2009

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2010 and 2009

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

 

25

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

53

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

54

 

 

 

 

 

 

 

Supplementary Information

 

56

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

 

 

Items 1-6

 

57

 

 

 

 

 

 

 

Signatures

 

59

 

 

 

 

 

 

 

Index to Exhibits

 

60

 

2



PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

386,671

 

$

299,127

 

Investments

 

169,877

 

163,692

 

Securities available for sale

 

1,947,462

 

1,910,476

 

Loans and leases:

 

 

 

 

 

Consumer real estate and other

 

7,280,454

 

7,331,991

 

Commercial real estate

 

3,323,018

 

3,269,003

 

Commercial business

 

340,035

 

449,516

 

Leasing and equipment finance

 

3,157,472

 

3,071,429

 

Inventory finance

 

795,622

 

468,805

 

Total loans and leases

 

14,896,601

 

14,590,744

 

Allowance for loan and lease losses

 

(253,120

)

(244,471

)

Net loans and leases

 

14,643,481

 

14,346,273

 

Premises and equipment, net

 

446,398

 

447,930

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

567,120

 

565,078

 

Total assets

 

$

18,313,608

 

$

17,885,175

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,352,506

 

$

4,400,290

 

Savings

 

5,424,679

 

5,339,955

 

Money market

 

639,007

 

640,569

 

Certificates of deposit

 

1,045,327

 

1,187,505

 

Total deposits

 

11,461,519

 

11,568,319

 

Short-term borrowings

 

344,681

 

244,604

 

Long-term borrowings

 

4,581,511

 

4,510,895

 

Total borrowings

 

4,926,192

 

4,755,499

 

Accrued expenses and other liabilities

 

419,935

 

381,602

 

Total liabilities

 

16,807,646

 

16,705,420

 

Equity:

 

 

 

 

 

Preferred stock, par value $.01 per share, 30,000,000 shares authorized; none issued and outstanding

 

 

 

Common stock, par value $.01 per share, 280,000,000 shares authorized; 142,685,276 and 130,339,500 shares issued

 

1,427

 

1,303

 

Additional paid-in capital

 

454,139

 

297,429

 

Retained earnings, subject to certain restrictions

 

1,041,331

 

946,002

 

Accumulated other comprehensive income (loss)

 

22,458

 

(18,545

)

Treasury stock at cost, 54,413 and 1,136,688 shares, and other

 

(23,400

)

(50,827

)

Total TCF Financial Corporation stockholders’ equity

 

1,495,955

 

1,175,362

 

Non-controlling interest in subsidiaries

 

10,007

 

4,393

 

Total equity

 

1,505,962

 

1,179,755

 

Total liabilities and equity

 

$

18,313,608

 

$

17,885,175

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(In thousands, except per-share data)

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

219,974

 

$

217,307

 

$

663,151

 

$

642,084

 

Securities available for sale

 

19,901

 

20,474

 

62,373

 

69,392

 

Investments and other

 

1,232

 

1,217

 

3,609

 

3,210

 

Total interest income

 

241,107

 

238,998

 

729,133

 

714,686

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

13,974

 

27,512

 

47,859

 

100,941

 

Borrowings

 

53,378

 

49,997

 

156,358

 

150,380

 

Total interest expense

 

67,352

 

77,509

 

204,217

 

251,321

 

Net interest income

 

173,755

 

161,489

 

524,916

 

463,365

 

Provision for credit losses

 

59,287

 

75,544

 

158,791

 

181,147

 

Net interest income after provision for credit losses

 

114,468

 

85,945

 

366,125

 

282,218

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

67,684

 

77,433

 

211,701

 

212,033

 

Card revenue

 

27,779

 

26,393

 

83,442

 

77,957

 

ATM revenue

 

7,985

 

7,861

 

22,851

 

23,432

 

Subtotal

 

103,448

 

111,687

 

317,994

 

313,422

 

Leasing and equipment finance

 

24,912

 

15,173

 

65,792

 

44,705

 

Other

 

1,077

 

1,197

 

4,767

 

2,475

 

Fees and other revenue

 

129,437

 

128,057

 

388,553

 

360,602

 

Gains on securities, net

 

8,505

 

 

7,938

 

22,104

 

Total non-interest income

 

137,942

 

128,057

 

396,491

 

382,706

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

90,282

 

90,680

 

265,490

 

267,622

 

Occupancy and equipment

 

32,091

 

31,619

 

95,583

 

95,193

 

FDIC premiums

 

5,486

 

5,085

 

16,186

 

13,821

 

Advertising and marketing

 

3,354

 

4,766

 

9,908

 

13,345

 

Deposit account premiums

 

3,340

 

7,472

 

15,616

 

21,335

 

Other

 

39,481

 

34,736

 

108,944

 

102,625

 

Subtotal

 

174,034

 

174,358

 

511,727

 

513,941

 

Foreclosed real estate and repossessed assets, net

 

9,588

 

8,461

 

27,604

 

19,349

 

Operating lease depreciation

 

8,965

 

3,734

 

28,817

 

11,618

 

Other credit costs, net

 

(834

)

3,714

 

4,476

 

7,751

 

FDIC special assessment

 

 

 

 

8,362

 

Total non-interest expense

 

191,753

 

190,267

 

572,624

 

561,021

 

Income before income tax expense

 

60,657

 

23,735

 

189,992

 

103,903

 

Income tax expense

 

22,852

 

6,491

 

71,754

 

36,469

 

Income after income tax expense

 

37,805

 

17,244

 

118,238

 

67,434

 

Income (loss) attributable to non-controlling interest

 

912

 

(207

)

2,399

 

(207

)

Net income

 

36,893

 

17,451

 

115,839

 

67,641

 

Preferred stock dividends

 

 

 

 

6,378

 

Non-cash deemed preferred stock dividend

 

 

 

 

12,025

 

Net income available to common stockholders

 

$

36,893

 

$

17,451

 

$

115,839

 

$

49,238

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.26

 

$

.14

 

$

.84

 

$

.39

 

Diluted

 

$

.26

 

$

.14

 

$

.84

 

$

.39

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.05

 

$

.05

 

$

.15

 

$

.35

 

See accompanying notes to consolidated financial statements.

 

4



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

TCF Financial Corporation

 

 

 

 

 

(Dollars in thousands)

 

Number of
Common
Shares Issued

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Treasury
Stock
and Other

 

Total

 

Non-controlling
Interests

 

Total
Equity

 

Balance, December 31, 2008

 

130,839,378

 

$

348,437

 

$

1,308

 

$

330,474

 

$

927,893

 

$

(3,692

)

$

(110,644

)

$

1,493,776

 

$

 

$

1,493,776

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) after income tax expense

 

 

 

 

 

67,641

 

 

 

67,641

 

(207

)

67,434

 

Other comprehensive income

 

 

 

 

 

 

4,497

 

 

4,497

 

 

4,497

 

Comprehensive income (loss)

 

 

 

 

 

67,641

 

4,497

 

 

72,138

 

(207

)

71,931

 

Investment by non-controlling interest

 

 

 

 

 

 

 

 

 

3,811

 

3,811

 

Dividends on preferred stock

 

 

710

 

 

 

(6,378

)

 

 

(5,668

)

 

(5,668

)

Dividends on common stock

 

 

 

 

 

(44,440

)

 

 

(44,440

)

 

(44,440

)

Non-cash deemed preferred stock dividend

 

 

12,025

 

 

 

(12,025

)

 

 

 

 

 

Redemption of preferred stock

 

 

(361,172

)

 

 

 

 

 

(361,172

)

 

(361,172

)

Grants of restricted stock, 549,920 shares

 

 

 

 

(14,241

)

 

 

14,241

 

 

 

 

Treasury shares sold to TCF employee
benefit plans, 1,131,430 shares

 

 

 

 

(14,150

)

 

 

29,299

 

15,149

 

 

15,149

 

Exercise of stock options, 108,800 shares

 

 

 

 

(1,279

)

 

 

2,817

 

1,538

 

 

1,538

 

Cancellation of shares of restricted stock

 

(448,500

)

 

(4

)

(481

)

191

 

 

 

(294

)

 

(294

)

Cancellation of common shares for
tax withholding

 

(17,670

)

 

 

(235

)

 

 

 

(235

)

 

(235

)

Amortization of stock compensation

 

 

 

 

6,515

 

 

 

 

6,515

 

 

6,515

 

Stock compensation tax expense

 

 

 

 

(1,072

)

 

 

 

(1,072

)

 

(1,072

)

Change in shares held in trust for
deferred compensation plans, at cost

 

 

 

 

(1,341

)

 

 

1,341

 

 

 

 

Balance, September 30, 2009

 

130,373,208

 

$

 

$

1,304

 

$

304,190

 

$

932,882

 

$

805

 

$

(62,946

)

$

1,176,235

 

$

3,604

 

$

1,179,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

 

130,339,500

 

$

 

$

1,303

 

$

297,429

 

$

946,002

 

$

(18,545

)

$

(50,827

)

$

1,175,362

 

$

4,393

 

$

1,179,755

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

 

 

 

 

115,839

 

 

 

115,839

 

2,399

 

118,238

 

Other comprehensive income

 

 

 

 

 

 

41,003

 

 

41,003

 

 

41,003

 

Comprehensive income

 

 

 

 

 

115,839

 

41,003

 

 

156,842

 

2,399

 

159,241

 

Public offering of common stock

 

12,322,250

 

 

124

 

164,443

 

 

 

 

164,567

 

 

164,567

 

Investment by non-controlling interest

 

 

 

 

 

 

 

 

 

3,215

 

3,215

 

Dividends on common stock

 

 

 

 

 

(20,538

)

 

 

(20,538

)

 

(20,538

)

Grants of restricted stock, 324,663 shares

 

 

 

 

(8,407

)

 

 

8,407

 

 

 

 

Common shares purchased by TCF employee benefit plans

 

177,011

 

 

2

 

2,623

 

 

 

 

2,625

 

 

2,625

 

Treasury shares sold to TCF employee
benefit plans, 757,612 shares

 

 

 

 

(7,893

)

 

 

19,619

 

11,726

 

 

11,726

 

Cancellation of shares of restricted stock

 

(21,223

)

 

 

(221

)

28

 

 

 

(193

)

 

(193

)

Cancellation of common shares for
tax withholding

 

(132,262

)

 

(2

)

(1,891

)

 

 

 

(1,893

)

 

(1,893

)

Amortization of stock compensation

 

 

 

 

7,168

 

 

 

 

7,168

 

 

7,168

 

Stock compensation tax benefits

 

 

 

 

289

 

 

 

 

289

 

 

289

 

Change in shares held in trust for
deferred compensation plans, at cost

 

 

 

 

599

 

 

 

(599

)

 

 

 

Balance, September 30, 2010

 

142,685,276

 

$

 

$

1,427

 

$

454,139

 

$

1,041,331

 

$

22,458

 

$

(23,400

)

$

1,495,955

 

$

10,007

 

$

1,505,962

 

See accompanying notes to consolidated financial statements.

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(In thousands)

 

2010

 

2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

115,839

 

$

67,641

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for credit losses

 

158,791

 

181,147

 

Depreciation and amortization

 

65,686

 

46,959

 

Net increase in other assets and accrued expenses and other liabilities

 

26,574

 

19,656

 

Gains on sales of assets, net

 

(9,553

)

(22,305

)

Other, net

 

11,620

 

9,908

 

Total adjustments

 

253,118

 

235,365

 

Net cash provided by operating activities

 

368,957

 

303,006

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

3,673,922

 

2,369,555

 

Originations and purchases of loans

 

(3,417,903

)

(2,451,930

)

Purchases of equipment for lease financing

 

(570,420

)

(562,834

)

Purchase of leasing and equipment finance portfolios

 

(186,779

)

(329,432

)

Purchase of inventory finance portfolios

 

(168,612

)

(42,871

)

Proceeds from sales of securities available for sale

 

284,681

 

1,097,711

 

Purchases of securities available for sale

 

(498,822

)

(1,312,101

)

Proceeds from maturities of and principal collected on securities available for sale

 

245,635

 

274,455

 

Purchases of Federal Home Loan Bank stock

 

(10,008

)

 

Redemption of Federal Home Loan Bank stock

 

11,135

 

 

Proceeds from sales of real estate owned

 

64,924

 

34,532

 

Purchases of premises and equipment

 

(28,491

)

(31,510

)

Acquisition of Fidelity National Capital, Inc.

 

 

(57,728

)

Other, net

 

25,186

 

21,686

 

Net cash used by investing activities

 

(575,552

)

(990,467

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(106,800

)

1,382,659

 

Net increase (decrease) in short-term borrowings

 

100,077

 

(205,464

)

Proceeds from long-term borrowings

 

166,785

 

18,202

 

Payments on long-term borrowings

 

(31,733

)

(132,584

)

Net proceeds from public offering of common stock

 

164,567

 

 

Redemption of preferred stock

 

 

(361,172

)

Net investment by non-controlling interest

 

3,215

 

3,811

 

Dividends paid on common stock

 

(20,538

)

(44,440

)

Dividends paid on preferred stock

 

 

(7,925

)

Common shares sold to TCF employee benefit plans

 

11,726

 

15,149

 

Other, net

 

6,840

 

6,508

 

Net cash provided by financing activities

 

294,139

 

674,744

 

Net increase (decrease) in cash and due from banks

 

87,544

 

(12,717

)

Cash and due from banks at beginning of period

 

299,127

 

342,380

 

Cash and due from banks at end of period

 

$

386,671

 

$

329,663

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

195,605

 

$

255,513

 

Income taxes

 

$

70,636

 

$

9,536

 

Transfer of loans and leases to other assets

 

$

151,995

 

$

113,957

 

See accompanying notes to consolidated financial statements.

 

6



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)                     Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and notes necessary for complete financial statements in conformity with generally accepted accounting principles. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the most recent Annual Report on Form 10-K of TCF Financial Corporation (“TCF” or the “Company”), which contains the latest audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2009 and for the year then ended. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. For Consolidated Statements of Cash Flow purposes, cash and cash equivalents include cash and due from banks.

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring items, considered necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

 

(2)                     Investments

 

The carrying values of investments consist of the following.

 

(In thousands)

 

At
September 30,
2010

 

At
December 31,
2009

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

126,889

 

$

128,016

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

131,506

 

132,633

 

Federal Reserve Bank stock, at cost

 

30,692

 

22,972

 

Other

 

7,679

 

8,087

 

Total investments

 

$

169,877

 

$

163,692

 

 

The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s current and previous borrowings from these banks. FHLBs obtain their funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank system. The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are generally jointly and severally liable for repayment of each other’s debt. Therefore, TCF’s investments in these banks could be adversely impacted by the financial operations of the FHLBs and actions of their regulator, the Federal Housing Finance Agency. Other investments primarily consist of non-traded mortgage-backed securities and other bonds which qualify for investment credit under the Community Reinvestment Act.

 

During the first nine months of 2010, TCF recorded an impairment charge of $241 thousand on other investments, which had a carrying value of $7.7 million at September 30, 2010, as full recovery is not expected.

 

7



 

(3)                     Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At September 30, 2010

 

At December 31, 2009

 

(Dollars in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
enterprises and federal agencies

 

$

1,699,305

 

$

63,983

 

$

 

$

1,763,288

 

$

1,903,201

 

$

21,138

 

$

19,130

 

$

1,905,209

 

Other

 

228

 

 

 

228

 

263

 

 

 

263

 

U.S. Treasury Bills

 

180,974

 

 

3

 

180,971

 

 

 

 

 

Other securities

 

3,408

 

 

433

 

2,975

 

4,783

 

221

 

 

5,004

 

Total

 

$

1,883,915

 

$

63,983

 

$

436

 

$

1,947,462

 

$

1,908,247

 

$

21,359

 

$

19,130

 

$

1,910,476

 

Weighted-average yield

 

3.98

%

 

 

 

 

 

 

4.54

%

 

 

 

 

 

 

 

At both September 30, 2010 and December 31, 2009, TCF had $1.8 billion of securities available for sale pledged as collateral to secure certain borrowings and deposits.

 

During the first nine months of 2010, TCF recorded an impairment charge of $1.4 million on other securities as full recovery is not expected. The other securities had a fair value of $3 million at September 30, 2010.

 

The following table shows the securities available for sale portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position. Unrealized losses on securities available for sale are due to lower values for equity securities or changes in interest rates and not due to credit quality issues. TCF has the ability and intent to hold these investments until a recovery of fair value occurs.

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

(In thousands)

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

At September 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bills

 

$

180,971

 

$

3

 

$

 

$

 

$

180,971

 

$

3

 

Other securities

 

2,975

 

433

 

 

 

2,975

 

433

 

Total

 

$

183,946

 

$

436

 

$

 

$

 

$

183,946

 

$

436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
enterprises and federal agancies

 

$

1,082,197

 

$

19,130

 

$

 

$

 

$

1,082,197

 

$

19,130

 

 

The amortized cost and fair value of securities available for sale at September 30, 2010, by contractual maturity, are shown below.

 

(In thousands)

 

Amortized
Cost

 

Fair Value

 

Due in one year or less

 

$

181,024

 

$

181,021

 

Due in 1-5 years

 

234

 

235

 

Due in 5-10 years

 

362

 

376

 

Due after 10 years

 

1,699,137

 

1,763,106

 

No stated maturity

 

3,158

 

2,724

 

Total

 

$

1,883,915

 

$

1,947,462

 

 

8



 

(4)                     Loans and Leases

 

The following table sets forth information about loans and leases.

 

(Dollars in thousands)

 

At
September 30,
2010

 

At
December 31,
2009

 

Percentage
Change

 

Consumer real estate and other:

 

 

 

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,951,772

 

$

4,961,347

 

(.2

)%

 

Junior lien

 

2,285,066

 

2,319,222

 

(1.5

)

 

Total consumer real estate

 

7,236,838

 

7,280,569

 

(.6

)

 

Other

 

43,616

 

51,422

 

(15.2

)

 

Total consumer real estate and other

 

7,280,454

 

7,331,991

 

(.7

)

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

3,137,025

 

3,016,518

 

4.0

 

 

Construction and development

 

185,993

 

252,485

 

(26.3

)

 

Total commercial real estate

 

3,323,018

 

3,269,003

 

1.7

 

 

Commercial business

 

340,035

 

449,516

 

(24.4

)

 

Total commercial

 

3,663,053

 

3,718,519

 

(1.5

)

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

 

Equipment finance loans

 

904,607

 

868,830

 

4.1

 

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases

 

2,330,187

 

2,305,945

 

1.1

 

 

Sales-type leases

 

27,014

 

24,714

 

9.3

 

 

Lease residuals

 

109,448

 

106,391

 

2.9

 

 

Unearned income and deferred lease costs

 

(213,784

)

(234,451

)

8.8

 

 

Total lease financings

 

2,252,865

 

2,202,599

 

2.3

 

 

Total leasing and equipment finance

 

3,157,472

 

3,071,429

 

2.8

 

 

Inventory finance

 

795,622

 

468,805

 

69.7

 

 

Total loans and leases

 

$

14,896,601

 

$

14,590,744

 

2.1

 

 

(1)          Operating leases of $82.2 million at September 30, 2010 and $105.9 million at December 31, 2009 are included in other assets in the Consolidated Statements of Financial Condition.

 

Included within the loans and leases above are certain loans that have been modified in order to retain customers or maximize collection of loan balances. If, for economic or legal reasons related to the customer’s financial difficulties, TCF grants a concession that it would not have otherwise considered, the modified loan is classified as a restructured loan. All restructured loans are considered to be impaired. TCF held restructured consumer loans of $341.1 million and $267.9 million at September 30, 2010 and December 31, 2009, respectively. Of these loans, $315.6 million and $252.5 million were accruing at September 30, 2010 and December 31, 2009, respectively. TCF also held $14.8 million and $9.6 million of restructured commercial loans at September 30, 2010 and December 31, 2009, respectively. Of these loans, $5.5 million were accruing at September 30, 2010. There were no accruing restructured commercial loans at December 31, 2009. The amount of additional funds committed to borrowers who have restructured loans was $40 thousand at September 30, 2010 and $3 million at December 31, 2009.

 

9



 

(5)                     Acquired Loans and Leases

 

During the first nine months of 2010, TCF paid $355.4 million to acquire loans and leases having contractual remaining cash flows of $367 million. At the time of acquisition, the expected principal cash flows to be collected over the life of the contracts and minimum lease payments was $355.2 million. However, for these loans and leases, it was probable that TCF would collect all contractual remaining cash flows of $367 million based on customer payments or indemnifications from the sellers or, in the case of inventory finance receivables, from program manufacturers.

 

During the first nine months of 2009, TCF paid $372.3 million to acquire loans and leases having contractual remaining cash flows of $427.7 million. At the time of acquisition, the expected principal, minimum lease payment and residual cash flows to be collected over the life of the contracts was $371.4 million. For these loans and leases, it was probable that TCF would not collect all of the contractual amounts due but was probable that TCF would collect the expected cash flows. These loans and leases were initially recorded at fair value and a non-accretable discount was established for the difference between the contractual cash flows and the expected cash flows determined at the time of acquisition. Non-accretable discounts of $5.4 million and $10.2 million remained on these portfolios at September 30, 2010 and December 31, 2009, respectively. In the future, if TCF is unable to collect the expected cash flows or revises its expectations below the current level, an allowance for credit losses will be established on these acquired portfolios.

 

The excess of expected principal cash flows to be collected over the initial fair value of the acquired portfolios is referred to as the accretable yield and is accreted into interest income over the estimated life of the acquired portfolios using the effective yield method. The accretable yield is affected by changes in interest rate indices for variable rate acquired portfolios, changes in prepayment assumptions and changes in the expected principal and interest payments over the estimated life of the loan. These loans and leases are classified as accruing and interest income continues to be recognized unless expected losses exceed the non-accretable discount.

 

The following table provides a summary of accretable yield activity for all acquired loan and lease portfolios during the three and nine months ended September 30, 2010 and 2009.

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(In thousands)

 

2010

 

 

2009

 

2010

 

 

2009

 

Balance at beginning of period

 

$

1,405

 

 

$

1,023

 

$

1,903

 

 

$

 

Portfolio acquisitions

 

214

 

 

862

 

214

 

 

2,070

 

Accretion

 

(316

)

 

(133

)

(814

)

 

(318

)

Balance at end of period

 

$

1,303

 

 

$

1,752

 

$

1,303

 

 

$

1,752

 

 

Within the loan and lease portfolios acquired in 2009, there were certain loans which had experienced deterioration in credit quality at the time of acquisition. These loans had outstanding principal balances of $15.8 million and $21.6 million at September 30, 2010 and December 31, 2009, respectively. The non-accretable discount on loans acquired with deteriorated credit quality was $834 thousand and $1 million at September 30, 2010 and December 31, 2009, respectively. The remaining accretion for these loans was $251 thousand at September 30, 2010 and $376 thousand at December 31, 2009. Accretion of $125 thousand and $108 thousand was recorded to income during the nine months ended September 30, 2010 and 2009, respectively.

 

10



 

(6)                     Long-term Borrowings

 

The following table sets forth information about long-term borrowings.

 

 

 

 

 

At September 30, 2010

 

At December 31, 2009

 

(Dollars in thousands)

 

Stated
Maturity

 

Amount

 

Weighted-
Average
Rate

 

Amount

 

Weighted-
Average
Rate

 

FHLB advances and securities sold under
repurchase agreements

 

2010

 

$

100,000

 

6.02%

 

$

100,000

 

6.02%

 

 

 

2011

 

300,000

 

4.64

 

300,000

 

4.64

 

 

 

2015

 

900,000

 

4.18

 

900,000

 

4.18

 

 

 

2016

 

1,100,000

 

4.49

 

1,100,000

 

4.49

 

 

 

2017

 

1,250,000

 

4.60

 

1,250,000

 

4.60

 

 

 

2018

 

300,000

 

3.51

 

300,000

 

3.51

 

Sub-total

 

 

 

3,950,000

 

4.43

 

3,950,000

 

4.43

 

Subordinated bank notes

 

2014

 

71,020

 

1.95

 

71,020

 

1.91

 

 

 

2015

 

50,000

 

1.88

 

49,969

 

5.37

 

 

 

2016

 

74,572

 

5.63

 

74,522

 

5.63

 

Sub-total

 

 

 

195,592

 

3.33

 

195,511

 

4.21

 

Junior subordinated notes (trust preferred)

 

2068

 

110,746

 

12.82

 

110,441

 

11.20

 

Senior unsecured term note

 

2012

 

89,683

 

4.08

 

 

 

Discounted lease rentals

 

2010

 

27,282

 

5.33

 

108,795

 

5.42

 

 

 

2011

 

84,403

 

5.35

 

69,420

 

5.55

 

 

 

2012

 

61,024

 

5.36

 

43,968

 

5.62

 

 

 

2013

 

37,199

 

5.32

 

25,657

 

5.72

 

 

 

2014

 

15,385

 

5.12

 

6,500

 

5.84

 

 

 

2015

 

4,605

 

5.01

 

402

 

5.89

 

 

 

2016

 

3,805

 

4.98

 

201

 

5.91

 

 

 

2017

 

1,787

 

4.98

 

 

 

Sub-total

 

 

 

235,490

 

5.32

 

254,943

 

5.53

 

Total long-term borrowings

 

 

 

$

 4,581,511

 

4.61

 

$

4,510,895

 

4.65

 

 

Included in FHLB advances and repurchase agreements at September 30, 2010 are $500 million of fixed-rate FHLB advances and repurchase agreements, which are callable quarterly by counterparties at par until maturity. In addition, TCF has $350 million of FHLB advances and $400 million of repurchase agreements which contain one-time call provisions in either 2010 or 2011.

 

The probability that the advances and repurchase agreements will be called by the counterparties depends primarily on the level of related interest rates at the call date. If FHLB advances are called, replacement funding will be available from the FHLB at the then-prevailing market rate of interest for the term selected by TCF, subject to standard terms and conditions. Subordinated bank notes with stated maturities in 2014 and 2015 are callable quarterly by TCF and have variable interest rates which reset quarterly.

 

11



 

The next call year and stated maturity year for the callable FHLB advances and repurchase agreements outstanding at September 30, 2010 were as follows.

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Year

 

Next Call

 

 

Weighted-
Average Rate

 

Stated
Maturity

 

 

Weighted-
Average Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

$

 850,000

 

 

4.32

%

$

 —

 

 

%

2011

 

400,000

 

 

3.84

 

200,000

 

 

4.85

 

2015

 

 

 

 

400,000

 

 

4.17

 

2016

 

 

 

 

100,000

 

 

4.82

 

2017

 

 

 

 

250,000

 

 

4.13

 

2018

 

 

 

 

300,000

 

 

3.51

 

Total

 

$

 1,250,000

 

 

4.16

 

$

 1,250,000

 

 

4.16

 

 

During the second quarter of 2010, TCF entered into a $90 million senior unsecured variable-rate term note maturing in July 2012. The loan is prepayable and contains certain covenants common to such agreements. TCF was not in default with respect to any covenants under the credit agreement at September 30, 2010.

 

(7)                     Equity

 

Treasury stock and other consists of the following.

 

(In thousands)

 

At
September 30,
2010

 

At
December 31,
2009

 

Treasury stock, at cost

 

$

(1,409

)

$

(29,435

)

Shares held in trust for deferred
compensation plans, at cost

 

(21,991

)

(21,392

)

Total

 

$

(23,400

)

$

(50,827

)

 

In February of 2010, TCF completed a public offering of common stock which raised net proceeds of $164.6 million through the issuance of 12,322,250 common shares. At September 30, 2010, TCF had 5.4 million shares in its stock repurchase program authorized by its Board of Directors.

 

At September 30, 2010, TCF had outstanding 3,199,998 warrants to purchase common stock with a strike price of $16.93 per share. Upon completion of the U.S. Treasury’s secondary public offering of the warrants issued under the Capital Purchase Program (“CPP”) in December of 2009, the warrants became publicly traded on the New York Stock Exchange under the symbol “TCB WS”. As a result, TCF has no further obligations to the Federal Government in connection with the CPP.

 

TCF has a joint venture with The Toro Company (“Toro”) called Red Iron Acceptance, LLC (“Red Iron”). Red Iron provides financing for U.S. distributors and dealers and select Canadian distributors of the Toro and Exmark brands. TCF and Toro maintain a 55 percent and 45 percent ownership interest, respectively, in Red Iron. As TCF has a controlling financial interest in Red Iron, its financial results are consolidated in TCF’s financial statements. Toro’s interest is reported as a non-controlling interest within equity and qualifies as tier 1 regulatory capital.

 

12



 

TCF continues to be well-capitalized based on the capital requirements determined by the Federal Reserve Board (“FRB”) and the Office of the Comptroller of the Currency (“OCC”). The following table sets forth TCF’s and TCF National Bank’s regulatory tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the stated minimum and well-capitalized capital ratio requirements. Increases since December 31, 2009 in TCF’s tier 1 and total risk-based capital are primarily the result of the public offering of common stock in February of 2010, which raised net proceeds of $164.6 million, as well as an increase in retained earnings. Increases since December 31, 2009 in TCF National Bank’s tier 1 leverage, tier 1 risk-based and total risk-based capital levels are primarily due to infusions of capital from TCF as well as increased retained earnings.

 

 

 

 Actual

 

Minimum
Capital Requirement (1) 

 

Well-Capitalized
Capital Requirement (1) 

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of September 30, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

 1,447,070

 

8.11

%

$

 535,039

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

1,490,689

 

8.36

 

534,736

 

3.00

 

$

 891,227

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,447,070

 

10.35

 

559,367

 

4.00

 

839,051

 

6.00

 

TCF National Bank

 

1,490,689

 

10.67

 

558,959

 

4.00

 

838,438

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,780,484

 

12.73

 

1,118,734

 

8.00

 

1,398,418

 

10.00

 

TCF National Bank

 

1,823,977

 

13.05

 

1,117,918

 

8.00

 

1,397,397

 

10.00

 

As of December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

 1,161,750

 

6.59

%

$

 528,681

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

1,103,875

 

6.27

 

527,836

 

3.00

 

$

 879,727

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,161,750

 

8.52

 

545,115

 

4.00

 

817,672

 

6.00

 

TCF National Bank

 

1,103,875

 

8.11

 

544,648

 

4.00

 

816,972

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,514,940

 

11.12

 

1,090,230

 

8.00

 

1,362,787

 

10.00

 

TCF National Bank

 

1,456,858

 

10.70

 

1,089,297

 

8.00

 

1,361,621

 

10.00

 

(1)          The minimum and well capitalized capital requirements are determined by the Federal Reserve Board for TCF and by the OCC for TCF National Bank.

N.A. Not Applicable.

 

(8)                     Foreign Exchange Contracts

 

Forward foreign exchange contracts to sell Canadian dollars are used to manage the foreign exchange risk associated with certain assets and liabilities of TCF’s wholly-owned Canadian subsidiary, TCF Commercial Finance Canada, Inc. Forward foreign exchange contracts represent agreements to exchange Canadian dollars for U.S. dollars at an agreed-upon price on an agreed-upon settlement date. All forward foreign exchange contracts are recognized within other assets or other liabilities at fair value, with changes reflected in earnings, and typically settle within 30 days. At September 30, 2010, TCF had not designated any of these contracts as hedges.

 

13



 

The following table summarizes the forward foreign exchange contracts, recorded at fair value, that are reflected within other assets and other liabilities on TCF’s Consolidated Statements of Financial Condition.