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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

March 31, 2011

 

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

 

April 20, 2011

Common Stock, $.01 par value

 

159,033,249 shares

 

 

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

Part I. Financial Information

 

Pages

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition
at March 31, 2011 and December 31, 2010

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income for the
Three Months Ended March 31, 2011 and 2010

 

4

 

 

 

 

 

 

 

Consolidated Statements of Equity for the
Three Months Ended March 31, 2011 and 2010

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2011 and 2010

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

 

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

 

28

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

50

 

 

 

 

 

Item 4. Controls and Procedures

 

51

 

 

 

 

 

Supplementary Information

 

52

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Items 1-6

 

53

 

 

 

 

 

Signatures

 

56

 

 

 

 

 

Index to Exhibits

 

57

 

2



 

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2011

 

2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

702,811

 

$

663,901

 

Investments

 

166,381

 

179,768

 

Securities available for sale

 

2,172,017

 

1,931,174

 

Loans and leases:

 

 

 

 

 

Consumer real estate and other

 

7,097,175

 

7,195,269

 

Commercial

 

3,608,356

 

3,646,203

 

Leasing and equipment finance

 

3,079,966

 

3,154,478

 

Inventory finance

 

1,011,044

 

792,354

 

Total loans and leases

 

14,796,541

 

14,788,304

 

Allowance for loan and lease losses

 

(255,308

)

(265,819

)

Net loans and leases

 

14,541,233

 

14,522,485

 

Premises and equipment, net

 

443,057

 

443,768

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

534,051

 

571,330

 

Total assets

 

$

18,712,149

 

$

18,465,025

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,651,762

 

$

4,530,064

 

Savings

 

5,582,980

 

5,390,802

 

Money market

 

695,884

 

635,922

 

Certificates of deposit

 

1,113,058

 

1,028,327

 

Total deposits

 

12,043,684

 

11,585,115

 

Short-term borrowings

 

12,898

 

126,790

 

Long-term borrowings

 

4,533,176

 

4,858,821

 

Total borrowings

 

4,546,074

 

4,985,611

 

Accrued expenses and other liabilities

 

397,907

 

414,136

 

Total liabilities

 

16,987,665

 

16,984,862

 

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; 159,086,990 and 142,965,012 shares issued

 

1,591

 

1,430

 

Additional paid-in capital

 

695,856

 

459,884

 

Retained earnings, subject to certain restrictions

 

1,087,576

 

1,064,978

 

Accumulated other comprehensive loss

 

(44,172

)

(31,514

)

Treasury stock at cost, 45,504 and 51,160 shares, and other

 

(32,907

)

(23,115

)

Total TCF Financial Corporation stockholders’ equity

 

1,707,944

 

1,471,663

 

Non-controlling interest in subsidiaries

 

16,540

 

8,500

 

Total equity

 

1,724,484

 

1,480,163

 

Total liabilities and equity

 

$

18,712,149

 

$

18,465,025

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands, except per-share data)

 

2011

 

2010

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

Loans and leases

 

$

214,673

 

$

221,264

 

Securities available for sale

 

19,429

 

21,407

 

Investments and other

 

1,801

 

1,141

 

Total interest income

 

235,903

 

243,812

 

Interest expense:

 

 

 

 

 

Deposits

 

12,004

 

17,604

 

Borrowings

 

49,859

 

51,546

 

Total interest expense

 

61,863

 

69,150

 

Net interest income

 

174,040

 

174,662

 

Provision for credit losses

 

45,274

 

50,491

 

Net interest income after provision for credit losses

 

128,766

 

124,171

 

Non-interest income:

 

 

 

 

 

Fees and service charges

 

53,513

 

66,172

 

Card revenue

 

26,584

 

27,072

 

ATM revenue

 

6,705

 

7,022

 

Subtotal

 

86,802

 

100,266

 

Leasing and equipment finance

 

26,750

 

20,352

 

Other

 

694

 

2,455

 

Fees and other revenue

 

114,246

 

123,073

 

Losses on securities, net

 

 

(430

)

Total non-interest income

 

114,246

 

122,643

 

Non-interest expense:

 

 

 

 

 

Compensation and employee benefits

 

90,273

 

88,225

 

Occupancy and equipment

 

32,159

 

32,181

 

FDIC insurance

 

7,195

 

5,481

 

Deposit account premiums

 

3,198

 

6,798

 

Advertising and marketing

 

3,160

 

2,820

 

Other

 

34,566

 

34,410

 

Subtotal

 

170,551

 

169,915

 

Foreclosed real estate and repossessed assets, net

 

12,868

 

9,260

 

Operating lease depreciation

 

7,928

 

10,040

 

Other credit costs, net

 

2,548

 

2,587

 

Total non-interest expense

 

193,895

 

191,802

 

Income before income tax expense

 

49,117

 

55,012

 

Income tax expense

 

18,442

 

20,790

 

Income after income tax expense

 

30,675

 

34,222

 

Income attributable to non-controlling interest

 

989

 

301

 

Net income available to common stockholders

 

$

29,686

 

$

33,921

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

Basic

 

$

.20

 

$

.26

 

Diluted

 

$

.20

 

$

.26

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.05

 

$

.05

 

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

 

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, 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

 

 

 

 

33,921

 

 

 

33,921

 

301

 

34,222

 

Other comprehensive income

 

 

 

 

 

6,709

 

 

6,709

 

 

6,709

 

Comprehensive income

 

 

 

 

33,921

 

6,709

 

 

40,630

 

301

 

40,931

 

Public offering of common stock

 

12,322,250

 

124

 

164,443

 

 

 

 

164,567

 

 

164,567

 

Investment by non-controlling interest

 

 

 

 

 

 

 

 

7,103

 

7,103

 

Dividends on common stock

 

 

 

 

(6,418

)

 

 

(6,418

)

 

(6,418

)

Grants of restricted stock, 105,583 shares

 

 

 

(2,734

)

 

 

2,734

 

 

 

 

Treasury shares sold to TCF employee benefit plans, 408,487 shares

 

 

 

(4,640

)

 

 

10,578

 

5,938

 

 

5,938

 

Cancellation of shares of restricted stock

 

(3,750

)

 

(60

)

8

 

 

 

(52

)

 

 

(52

)

Cancellation of common shares for tax withholding

 

(97,819

)

(1

)

(1,331

)

 

 

 

(1,332

)

 

(1,332

)

Amortization of stock compensation

 

 

 

2,291

 

 

 

 

2,291

 

 

2,291

 

Stock compensation tax benefits

 

 

 

834

 

 

 

 

834

 

 

834

 

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

 

 

 

(624

)

 

 

624

 

 

 

 

Balance, March 31, 2010

 

142,560,181

 

$

1,426

 

$

455,608

 

$

973,513

 

$

(11,836

)

$

(36,891

)

$

1,381,820

 

$

11,797

 

$

1,393,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

142,965,012

 

$

1,430

 

$

459,884

 

$

1,064,978

 

$

(31,514

)

$

(23,115

)

$

1,471,663

 

$

8,500

 

$

1,480,163

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

 

 

 

29,686

 

 

 

29,686

 

989

 

30,675

 

Other comprehensive loss

 

 

 

 

 

(12,658

)

 

(12,658

)

 

(12,658

)

Comprehensive income (loss)

 

 

 

 

29,686

 

(12,658

)

 

17,028

 

989

 

18,017

 

Public offering of common stock

 

15,081,968

 

151

 

219,515

 

 

 

 

219,666

 

 

219,666

 

Investment by non-controlling interest

 

 

 

 

 

 

 

 

7,051

 

7,051

 

Dividends on common stock

 

 

 

 

(7,100

)

 

 

(7,100

)

 

(7,100

)

Grants of restricted stock, 820,656 shares

 

815,000

 

8

 

(154

)

 

 

146

 

 

 

 

Common shares purchased by TCF employee benefit plans

 

387,675

 

4

 

6,084

 

 

 

 

6,088

 

 

6,088

 

Cancellation of shares of restricted stock

 

(20,900

)

 

(144

)

12

 

 

 

(132

)

 

 

(132

)

Cancellation of common shares for tax withholding

 

(141,765

)

(2

)

(2,115

)

 

 

 

(2,117

)

 

(2,117

)

Amortization of stock compensation

 

 

 

2,391

 

 

 

 

2,391

 

 

2,391

 

Stock compensation tax benefits

 

 

 

457

 

 

 

 

457

 

 

457

 

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

 

 

 

9,938

 

 

 

(9,938

)

 

 

 

Balance, March 31, 2011

 

159,086,990

 

$

1,591

 

$

695,856

 

$

1,087,576

 

$

(44,172

)

$

(32,907

)

$

1,707,944

 

$

16,540

 

$

1,724,484

 

See accompanying notes to consolidated financial statements.

 

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

29,686

 

$

33,921

 

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

 

 

 

 

 

Provision for credit losses

 

45,274

 

50,491

 

Depreciation and amortization

 

19,899

 

22,156

 

Net increase in other assets and
accrued expenses and other liabilities

 

15,873

 

18,927

 

Other, net

 

(995

)

2,984

 

Total adjustments

 

80,051

 

94,558

 

Net cash provided by operating activities

 

109,737

 

128,479

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Net increase (decrease) in loans and leases

 

29,546

 

(63,002

)

Purchases of equipment for lease financing

 

(190,593

)

(165,222

)

Proceeds from sales of loans and leases

 

35,642

 

 

Purchases of securities available for sale

 

(346,953

)

(50,523

)

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

 

85,100

 

69,841

 

Purchases of Federal Home Loan Bank stock

 

(3,335

)

(2,224

)

Redemption of Federal Home Loan Bank stock

 

16,688

 

11,130

 

Proceeds from sales of real estate owned

 

27,707

 

28,171

 

Purchases of premises and equipment

 

(8,842

)

(6,910

)

Other, net

 

12,472

 

9,918

 

Net cash used by investing activities

 

(342,568

)

(168,821

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

458,569

 

314,054

 

Net decrease in short-term borrowings

 

(113,890

)

(227,014

)

Proceeds from long-term borrowings

 

405

 

20,703

 

Payments on long-term borrowings

 

(302,546

)

(9,277

)

Net proceeds from public offering of common stock

 

219,666

 

164,567

 

Net investment by non-controlling interest

 

7,051

 

7,103

 

Dividends paid on common stock

 

(7,100

)

(6,418

)

Stock compensation tax benefits

 

457

 

834

 

Common shares sold to TCF employee benefit plans

 

6,088

 

 

Treasury shares sold to TCF employee benefit plans

 

 

5,938

 

Other, net

 

3,041

 

3,745

 

Net cash provided by financing activities

 

271,741

 

274,235

 

Net increase in cash and due from banks

 

38,910

 

233,893

 

Cash and due from banks at beginning of period

 

663,901

 

299,127

 

Cash and due from banks at end of period

 

$

702,811

 

$

533,020

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

61,013

 

$

67,322

 

Income taxes

 

$

4,915

 

$

148

 

Transfer of loans and leases to other assets

 

$

48,918

 

$

39,426

 

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 (“GAAP”). 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, 2010 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 GAAP 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
March 31,
2011

 

At
December 31,
2010

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

123,546

 

$

136,899

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

128,163

 

141,516

 

Federal Reserve Bank stock, at cost

 

30,694

 

30,684

 

Other

 

7,524

 

7,568

 

Total investments

 

$

166,381

 

$

179,768

 

 

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.

 

No impairment charges were recorded on investments during the first quarter of 2011. During the first quarter of 2010, TCF recorded an impairment charge of $104 thousand on other investments, which had a carrying value of $7.9 million at March 31, 2010.

 

7



 

(3)                      Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At March 31, 2011

 

At December 31, 2010

 

(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

 

$

2,076,051

 

$

11,099

 

$

57,656

 

$

2,029,494

 

$

1,929,098

 

$

16,579

 

$

42,141

 

$

1,903,536

 

Other

 

199

 

 

 

199

 

222

 

 

 

222

 

U.S. Treasury Bills

 

139,982

 

2

 

 

139,984

 

24,999

 

1

 

 

25,000

 

Other securities

 

2,610

 

 

270

 

2,340

 

2,610

 

 

194

 

2,416

 

Total

 

$

2,218,842

 

$

11,101

 

$

57,926

 

$

2,172,017

 

$

1,956,929

 

$

16,580

 

$

42,335

 

$

1,931,174

 

Weighted-average yield

 

3.70

%

 

 

 

 

 

 

3.87

%

 

 

 

 

 

 

 

TCF recorded no impairment charge on other securities during the first quarter of 2011. TCF recorded an impairment charge of $326 thousand on other securities during the first quarter of 2010, as full recovery was not expected.  The other securities had fair values of $2.3 million and $4.6 million at March 31, 2011 and 2010, respectively.

 

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 that 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 March 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

1,368,109

 

$

57,656

 

$

 

$

 

$

1,368,109

 

$

57,656

 

Other securities

 

2,140

 

270

 

 

 

2,140

 

270

 

Total

 

$

1,370,249

 

$

57,926

 

$

 

$

 

$

1,370,249

 

$

57,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

988,753

 

$

42,141

 

$

 

$

 

$

988,753

 

$

42,141

 

Other securities

 

2,216

 

194

 

 

 

2,216

 

194

 

Total

 

$

990,969

 

$

42,335

 

$

 

$

 

$

990,969

 

$

42,335

 

 

The amortized cost and fair value of securities available for sale at March 31, 2011, by contractual maturity, are shown below.

 

(In thousands)

 

Amortized
Cost

 

Fair Value

 

Due in one year or less

 

$

140,082

 

$

140,084

 

Due in 1-5 years

 

194

 

202

 

Due in 5-10 years

 

241

 

247

 

Due after 10 years

 

2,075,915

 

2,029,344

 

No stated maturity

 

2,410

 

2,140

 

Total

 

$

2,218,842

 

$

2,172,017

 

 

8



 

(4)                      Loans and Leases

 

The following table sets forth information about loans and leases.

 

(Dollars in thousands)

 

At
March 31,
2011

 

At
December 31,
2010

 

Percentage
Change

 

Consumer real estate and other:

 

 

 

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,851,271

 

$

4,893,887

 

(.9

)%

 

Junior lien

 

2,210,763

 

2,262,194

 

(2.3

)

 

Total consumer real estate

 

7,062,034

 

7,156,081

 

(1.3

)

 

Other

 

35,141

 

39,188

 

(10.3

)

 

Total consumer real estate and other

 

7,097,175

 

7,195,269

 

(1.4

)

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

3,114,310

 

3,125,837

 

(.4

)

 

Construction and development

 

185,304

 

202,379

 

(8.4

)

 

Total commercial real estate

 

3,299,614

 

3,328,216

 

(.9

)

 

Commercial business

 

308,742

 

317,987

 

(2.9

)

 

Total commercial

 

3,608,356

 

3,646,203

 

(1.0

)

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

 

Equipment finance loans

 

941,455

 

939,474

 

.2

 

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases

 

2,186,669

 

2,277,753

 

(4.0

)

 

Sales-type leases

 

34,147

 

29,728

 

14.9

 

 

Lease residuals

 

105,929

 

109,555

 

(3.3

)

 

Unearned income and deferred lease costs

 

(188,234

)

(202,032

)

(6.8

)

 

Total lease financings

 

2,138,511

 

2,215,004

 

(3.5

)

 

Total leasing and equipment finance

 

3,079,966

 

3,154,478

 

(2.4

)

 

Inventory finance

 

1,011,044

 

792,354

 

27.6

 

 

Total loans and leases

 

$

14,796,541

 

$

14,788,304

 

.1

 

 

(1) Operating leases of $65.6 million at March 31, 2011 and $77.4 million at December 31, 2010 are included in other assets in the Consolidated Statements of Financial Condition.

 

During the three months ended March 31, 2011, TCF sold $26.7 million of minimum lease payments receivables under multiple transactions, received cash of $32.5 million and recognized a net gain of $5.8 million within leasing and equipment finance non-interest income.  The retained residual values related to these sales reported within the Statements of Financial Condition at March 31, 2011 totaled $375 thousand.  TCF’s lease residuals reported within the table above include $1.4 million related to sales of minimum lease payment receivables.

 

Acquired Loans and Leases Non-accretable discounts of $3.7 million and $4.2 million remained on previously purchased loan and lease portfolios at March 31, 2011 and December 31, 2010, 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.

 

9


 


 

Within the acquired loan and lease portfolios, there are certain loans which had experienced deterioration in credit quality at the time of acquisition.  These loans had outstanding principal balances of $11.7 million and $13.7 million at March 31, 2011 and December 31, 2010, respectively.  The non-accretable discount on loans acquired with deteriorated credit quality was $782 thousand and $769 thousand at March 31, 2011 and December 31, 2010, respectively.  The remaining accretion to be recognized as an adjustment of interest income for these loans was $170 thousand at March 31, 2011, and $207 thousand at December 31, 2010.  Accretion of $37 thousand and $51 thousand was recorded to income during the three months ended March 31, 2011 and March 31, 2010, respectively.

 

(5)                      Allowance for Loan and Lease Losses and Credit Quality Information

 

Allowance for Loan and Lease Losses The following tables provide the allowance for loan and lease losses, other credit loss reserves and other information regarding the allowance for loan and lease losses and balances by type of allowance methodology.

 

 

 

At or For the Three Months Ended March 31, 2011

 

(In thousands)

 

Consumer
Real Estate and
Other

 

Commercial

 

Leasing and
Equipment

Finance

 

Inventory
Finance

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

174,503

 

$

62,478

 

$

26,301

 

$

2,537

 

$

265,819

 

Charge-offs

 

(39,007

)

(17,912

)

(3,950

)

(236

)

(61,105

)

Recoveries

 

3,971

 

134

 

1,161

 

27

 

5,293

 

Net charge-offs

 

(35,036

)

(17,778

)

(2,789

)

(209

)

(55,812

)

Provision for credit losses

 

36,106

 

5,419

 

2,760

 

989

 

45,274

 

Other

 

 

 

 

27

 

27

 

Balance, at end of quarter

 

175,573

 

50,119

 

26,272

 

3,344

 

255,308

 

Other credit loss reserves

 

 

 

 

 

 

 

 

 

 

 

Reserves for unfunded commitments

 

1,183

 

1,115

 

 

 

2,298

 

Total credit losses reserves

 

$

176,756

 

$

51,234

 

$

26,272

 

$

3,344

 

$

257,606

 

 

 

 

At or For the Three Months Ended March 31, 2010

 

(In thousands)

 

Consumer
Real Estate and
Other

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

167,442

 

$

43,504

 

$

32,063

 

$

1,462

 

$

244,471

 

Charge-offs

 

(34,728

)

(8,003

)

(7,368

)

(452

)

(50,551

)

Recoveries

 

5,100

 

167

 

725

 

27

 

6,019

 

Net charge-offs

 

(29,628

)

(7,836

)

(6,643

)

(425

)

(44,532

)

Provision for credit losses

 

35,674

 

5,752

 

7,573

 

1,492

 

50,491

 

Balance, at end of quarter

 

173,488

 

41,420

 

32,993

 

2,529

 

250,430

 

Other credit loss reserves

 

 

 

 

 

 

 

 

 

 

 

Reserves for unfunded commitments

 

1,392

 

2,378

 

 

 

3,770

 

Total credit losses reserves

 

$

174,880

 

$

43,798

 

$

32,993

 

$

2,529

 

$

254,200

 

 

10



 

 

 

 

At March 31, 2011

 

(In thousands)

 

Consumer
Real Estate and
Other

 

Commercial

 

Leasing and
Equipment

Finance

 

Inventory
Finance

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for loss potential

 

$

917

 

$

23,698

 

$

8,453

 

$

481

 

$

33,549

 

Collectively evaluated for loss potential

 

174,656

 

26,421

 

17,819

 

2,863

 

221,759

 

Total

 

$

175,573

 

$

50,119

 

$

26,272

 

$

3,344

 

$

255,308

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for loss potential

 

$

6,195

 

$

707,473

 

$

36,393

 

$

5,300

 

$

755,361

 

Collectively evaluated for loss potential

 

7,090,980

 

2,900,883

 

3,031,881

 

1,005,744

 

14,029,488

 

Loans acquired with deteriorated credit quality

 

 

 

11,692

 

 

11,692

 

Total

 

$

7,097,175

 

$

3,608,356

 

$

3,079,966

 

$

1,011,044

 

$

14,796,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2010

 

(In thousands)

 

Consumer
Real Estate and
Other

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for loss potential

 

$

777

 

$

35,550

 

$

8,823

 

$

440

 

$

45,590

 

Collectively evaluated for loss potential

 

173,726

 

26,928

 

17,478

 

2,097

 

220,229

 

Total

 

$

174,503

 

$

62,478

 

$

26,301

 

$

2,537

 

$

265,819

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for loss potential

 

$

12,516

 

$

712,737

 

$

38,243

 

$

7,123

 

$

770,619

 

Collectively evaluated for loss potential

 

7,182,753

 

2,933,466

 

3,102,581

 

785,231

 

14,004,031

 

Loans acquired with deteriorated credit quality

 

 

 

13,654

 

 

13,654

 

Total

 

$

7,195,269

 

$

3,646,203

 

$

3,154,478

 

$

792,354

 

$

14,788,304

 

 

Performing and Non-accrual Loans and Leases The following tables set forth information regarding TCF’s performing and non-accrual loans and leases. Performing loans and leases are considered to have a lower risk of loss and are on accruing status. Non-accrual loans and leases are those which management believes have a higher risk of loss than performing loans and leases. Delinquent balances are determined based on the contractual terms of the loan or lease.

 

 

 

At March 31, 2011

 

(In thousands)

 

0-59 Days
Delinquent and
Accruing

 

60-89 Days
Delinquent and
Accruing

 

90 Days or
More
Delinquent
and Accruing

 

Total 60+
Days
Delinquent
and Accruing

 

Total
Performing

 

Non-Accrual

 

Total

 

Consumer real estate and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,647,382

 

$

27,832

 

$

42,192

 

$

70,024

 

$

4,717,406

 

$

133,865

 

$

4,851,271

 

Junior lien

 

2,169,910

 

8,564

 

10,964

 

19,528

 

2,189,438

 

21,325

 

2,210,763

 

Other

 

35,020

 

29

 

49

 

78

 

35,098

 

43

 

35,141

 

Total consumer real estate
and other

 

6,852,312

 

36,425

 

53,205

 

89,630

 

6,941,942

 

155,233

 

7,097,175

 

Commercial real estate

 

3,204,731

 

1,835

 

 

1,835

 

3,206,566

 

93,048

 

3,299,614

 

Commercial business

 

274,016

 

29

 

 

29

 

274,045

 

34,697

 

308,742

 

Total commercial

 

3,478,747

 

1,864

 

 

1,864

 

3,480,611

 

127,745

 

3,608,356

 

Leasing and equipment finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Middle market

 

1,564,370

 

3,256

 

84

 

3,340

 

1,567,710

 

22,518

 

1,590,228

 

Small ticket

 

694,322

 

2,611

 

999

 

3,610

 

697,932

 

11,622

 

709,554

 

Winthrop

 

513,328

 

95

 

 

95

 

513,423

 

374

 

513,797

 

Other

 

159,796

 

58

 

 

58

 

159,854

 

120

 

159,974

 

Total leasing and  
equipment finance

 

2,931,816

 

6,020

 

1,083

 

7,103

 

2,938,919

 

34,634

 

2,973,553

 

Inventory finance

 

1,009,334

 

150

 

123

 

273

 

1,009,607

 

1,437

 

1,011,044

 

Subtotal

 

14,272,209

 

44,459

 

54,411

 

98,870

 

14,371,079

 

319,049

 

14,690,128

 

Portfolios acquired with deteriorated credit quality

 

103,876

 

806

 

1,731

 

2,537

 

106,413

 

 

106,413

 

Total

 

$

14,376,085

 

$

45,265

 

$

56,142

 

$

101,407

 

$

14,477,492

 

$

319,049

 

$

14,796,541

 

 

11



 

 

 

At December 31, 2010

 

(In thousands)

 

0-59 Days
Delinquent and
Accruing

 

60-89 Days
Delinquent
and Accruing

 

90 Days or
More
Delinquent
and Accruing

 

Total 60+
Days
Delinquent
and Accruing

 

Total
Performing

 

Non-Accrual

 

Total

 

Consumer real estate and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,679,168

 

$

30,910

 

$

42,938

 

$

73,848

 

$

4,753,016

 

$

140,871

 

$

4,893,887

 

Junior lien

 

2,214,805

 

7,398

 

13,365

 

20,763

 

2,235,568

 

26,626

 

2,262,194

 

Other

 

39,099

 

30

 

9

 

39

 

39,138

 

50

 

39,188

 

Total consumer real estate
and other

 

6,933,072

 

38,338

 

56,312

 

94,650

 

7,027,722

 

167,547

 

7,195,269

 

Commercial real estate

 

3,215,055

 

8,856

 

 

8,856

 

3,223,911

 

104,305

 

3,328,216

 

Commercial business

 

279,879

 

165

 

 

165

 

280,044

 

37,943

 

317,987

 

Total commercial

 

3,494,934

 

9,021

 

 

9,021

 

3,503,955

 

142,248

 

3,646,203

 

Leasing and equipment finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Middle market

 

1,606,125

 

3,221

 

330

 

3,551

 

1,609,676

 

23,153

 

1,632,829

 

Small ticket

 

695,491

 

3,172

 

727

 

3,899

 

699,390

 

11,018

 

710,408

 

Winthrop

 

529,467

 

462

 

 

462

 

529,929

 

134

 

530,063

 

Other

 

158,431

 

 

 

 

158,431

 

102

 

158,533

 

Total leasing and
equipment finance

 

2,989,514

 

6,855

 

1,057

 

7,912

 

2,997,426

 

34,407

 

3,031,833

 

Inventory finance

 

790,955

 

189

 

155

 

344

 

791,299

 

1,055

 

792,354

 

Subtotal

 

14,208,475

 

54,403

 

57,524

 

111,927

 

14,320,402

 

345,257

 

14,665,659

 

Portfolios acquired with deteriorated credit quality

 

119,529

 

1,215

 

1,901

 

3,116

 

122,645

 

 

122,645

 

Total

 

$

14,328,004

 

$

55,618

 

$

59,425

 

$

115,043

 

$

14,443,047

 

$

345,257

 

$

14,788,304

 

 

 

The following table provides interest income recognized on loans and leases on non-accrual status and contractual interest that would have been recorded had the loans and leases performed in accordance with their original contractual terms.

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2011

 

2010

 

Contractual interest due on non-accrual loans and leases

 

$

9,661

 

$

8,607

 

Interest income recognized on loans and leases in non-accrual status

 

2,195

 

1,333

 

Net reduction in interest income

 

$

7,466

 

$

7,274

 

 

Consumer real estate loans to customers in bankruptcy totaled $126.9 million at March 31, 2011 and $109.2 million at December 31, 2010. Of these amounts, $23.6 million and $23.3 million were in non-accrual status at March 31, 2011 and December 31, 2010, respectively. As of March 31, 2011 and December 31, 2010, approximately 76.1% and 75.6%, respectively, of TCF consumer real estate loan customers in bankruptcy were less than 60 days past due on their payments. For the three months ended March 31, 2011 and 2010, interest income would have been reduced by approximately $89 thousand and $99 thousand, respectively, had the accrual of interest income been discontinued upon notification of bankruptcy.

 

Loan Modifications for Borrowers with Financial Difficulties Included within the loans and leases above are certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer’s financial difficulties, TCF grants a concession compared to the original terms and conditions on the loan, the modified loan is classified as a troubled debt restructuring (“TDR”). TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to or greater than the rate that TCF was willing to accept at the time of modification for a new loan with comparable risk and the loans are no longer considered impaired based on the terms of the restructuring agreements. All loans classified as TDRs are considered to be impaired. TCF held consumer real estate loan TDRs of $376.7 million and $367.9 million at March 31, 2011 and December 31, 2010, respectively, of which $342 million and $337.4 million were accruing at March 31, 2011 and December 31, 2010, respectively. TCF also held $56.1 million and $66.3 million of commercial real estate loan TDRs at March 31, 2011 and December 31, 2010, respectively, of which $17.5 million and $48.8 million were accruing at March 31, 2011

 

12



 

and December 31, 2010, respectively. There were no additional funds committed to borrowers in TDR status at March 31, 2011. The amount of additional funds committed to borrowers in TDR status was $2.2 million at December 31, 2010.

 

TDRs are evaluated separately in TCF’s allowance methodology based on the expected cash flows for loans in this status. Reserves for losses on accruing consumer real estate loan TDRs were $40.4 million, or 11.8% of the outstanding balance at March 31, 2011, and $36.8 million, or 10.9% of the outstanding balance at December 31, 2010. TCF utilized a 20% re-default rate on consumer real estate loan TDRs in determining impairment, which is consistent with actual experience. Reserves for losses on accruing commercial real estate loan TDRs were $350 thousand, or 2% of the outstanding balance, at March 31, 2011 and $695 thousand, or 1.4% of the outstanding balance, at December 31, 2010.

 

Consumer real estate loans that are less than 150 days past due, or six payments owing, at the time of modification remain on accrual status if there is demonstrated performance under a reduced payment amount prior to the actual legal modification and payment in full under the modified loan is expected. Otherwise, the loans are placed on non-accrual status and reported as non-accrual until there is sustained repayment performance for six consecutive payments. An accruing modified loan is re-aged to current delinquency status after the receipt of three consecutive modified payments.

 

The following table provides interest income recognized on TDRs and contractual interest that would have been recorded had the loans performed in accordance with their original contractual terms.

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2011

 

2010

 

Contractual interest due on TDRs

 

$

6,225

 

$

4,717

 

Interest income recognized on TDRs

 

3,413

 

2,415

 

Net reduction in interest income

 

$

2,812

 

$

2,302

 

 

Impaired Loans TCF considers impaired loans to include non-accrual commercial loans, equipment finance loans and inventory finance loans along with consumer real estate and commercial TDRs. Non-accrual impaired loans are included in the previous tables within the amounts disclosed as non-accrual and the accruing consumer real estate and commercial TDRs have been previously disclosed as performing within the tables of performing and non-accrual loans and leases. The loan balance of impaired loans represents the amount recorded within loans and leases on the Consolidated Statements of Financial Condition whereas the unpaid contractual balance represents the balances legally owed by the borrowers, excluding write-downs.

 

13



 

The following impaired loans were included in previous amounts disclosed within Performing and Non-accrual Loans and Leases and Loan Modifications for Borrowers with Financial Difficulties.

 

 

 

At March 31, 2011

 

(In thousands)

 

Unpaid
Contractual
Balance

 

Loan
Balance