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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, 2012

 

or

 

[  ] 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 [  ]

 

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 [  ]

 

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

[   ]

Non-accelerated filer

[   ]  (Do not check if a smaller reporting company)

Smaller reporting company

[   ]

 

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

Yes [  ] 

 

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 26, 2012

Common Stock, $.01 par value

 

163,335,368 shares

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

Part I. Financial Information

 

Pages

 

 

 

Item 1. Financial Statements

 

 

Consolidated Statements of Financial Condition at September 30, 2012 and December 31, 2011

 

1

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011

 

2

 

 

 

Consolidated Statements of Equity for the Nine Months Ended September 30, 2012 and 2011

 

3

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011

 

4

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

 

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

36

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

61

 

 

 

Item 4. Controls and Procedures

 

62

 

 

 

Supplementary Information

 

63

 

 

 

Part II. Other Information

 

 

 

 

 

Items 1-6

 

64

 

 

 

Signatures

 

66

 

 

 

Index to Exhibits

 

67

 



 

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)

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

 

922,127

$

 

1,389,704

 

Investments

 

126,487

 

157,780

 

Securities available for sale

 

559,671

 

2,324,038

 

Loans and leases held for sale

 

3,691

 

14,321

 

Loans and leases:

 

 

 

 

 

Consumer real estate

 

6,648,036

 

6,895,291

 

Commercial

 

3,511,234

 

3,449,492

 

Leasing and equipment finance

 

3,157,977

 

3,142,259

 

Inventory finance

 

1,466,269

 

624,700

 

Auto finance

 

407,091

 

3,628

 

Other

 

27,610

 

34,885

 

Total loans and leases

 

15,218,217

 

14,150,255

 

Allowance for loan and lease losses

 

(264,841

)

(255,672

)

Net loans and leases

 

14,953,376

 

13,894,583

 

Premises and equipment, net

 

442,356

 

436,281

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

645,045

 

537,041

 

Total assets

$

 

17,878,393

$

 

18,979,388

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

$

 

4,707,179

$

 

4,629,749

 

Savings

 

6,127,889

 

5,855,263

 

Money market

 

812,442

 

651,377

 

Certificates of deposit

 

2,073,909

 

1,065,615

 

Total deposits

 

13,721,419

 

12,202,004

 

Short-term borrowings

 

115,529

 

6,416

 

Long-term borrowings

 

1,936,988

 

4,381,664

 

Total borrowings

 

2,052,517

 

4,388,080

 

Accrued expenses and other liabilities

 

339,788

 

510,677

 

Total liabilities

 

16,113,724

 

17,100,761

 

Equity:

 

 

 

 

 

Preferred stock, par value $.01 per share, 30,000,000 shares authorized; and 6,900 shares issued

 

166,721

 

-

 

Common stock, par value $.01 per share, 280,000,000 shares authorized; 163,281,955 and 160,366,380 shares issued, respectively

 

1,633

 

1,604

 

Additional paid-in capital

 

746,543

 

715,247

 

Retained earnings, subject to certain restrictions

 

861,895

 

1,127,823

 

Accumulated other comprehensive income

 

18,067

 

56,826

 

Treasury stock at cost, 42,566 shares, and other

 

(43,395

)

(33,367

)

Total TCF Financial Corporation stockholders’ equity

 

1,751,464

 

1,868,133

 

Non-controlling interest in subsidiaries

 

13,205

 

10,494

 

Total equity

 

1,764,669

 

1,878,627

 

Total liabilities and equity

$

 

17,878,393

$

 

18,979,388

 

 

See accompanying notes to consolidated financial statements.

 

1



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands, except per-share data)

 

2012

 

2011

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

 

Loans and leases

$

 

210,140

 

$

210,885

 

$

 

624,890

 

$

639,381

 

Securities available for sale

 

5,607

 

22,561

 

 

30,535

 

62,629

 

Investments and other

 

4,105

 

1,997

 

 

10,171

 

5,634

 

Total interest income

 

219,852

 

235,443

 

 

665,596

 

707,644

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

Deposits

 

10,757

 

11,883

 

 

30,015

 

35,317

 

Borrowings

 

8,536

 

47,496

 

 

56,625

 

146,073

 

Total interest expense

 

19,293

 

59,379

 

 

86,640

 

181,390

 

Net interest income

 

200,559

 

176,064

 

 

578,956

 

526,254

 

Provision for credit losses

 

96,275

 

52,315

 

 

198,923

 

141,594

 

Net interest income after provision for credit losses

 

104,284

 

123,749

 

 

380,033

 

384,660

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

43,745

 

58,452

 

 

133,691

 

168,361

 

Card revenue

 

12,927

 

27,701

 

 

39,664

 

82,504

 

ATM revenue

 

6,122

 

7,523

 

 

18,597

 

21,319

 

Subtotal

 

62,794

 

93,676

 

 

191,952

 

272,184

 

Leasing and equipment finance

 

20,498

 

21,646

 

 

66,572

 

70,675

 

Gains on sales of auto loans

 

7,486

 

-

 

 

15,232

 

-

 

Gain on sales of consumer loans

 

4,559

 

-

 

 

4,559

 

-

 

Other

 

3,688

 

786

 

 

9,211

 

1,864

 

Fees and other revenue

 

99,025

 

116,108

 

 

287,526

 

344,723

 

Gains on securities, net

 

13,033

 

1,648

 

 

102,760

 

1,421

 

Total non-interest income

 

112,058

 

117,756

 

 

390,286

 

346,144

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

98,409

 

87,758

 

 

292,163

 

266,197

 

Occupancy and equipment

 

33,006

 

31,129

 

 

97,983

 

94,071

 

FDIC insurance

 

6,899

 

7,363

 

 

21,754

 

22,100

 

Advertising and marketing

 

4,248

 

1,145

 

 

12,269

 

7,784

 

Deposit account premiums

 

485

 

7,045

 

 

8,146

 

16,409

 

Operating lease depreciation

 

6,325

 

7,409

 

 

19,473

 

23,196

 

Other

 

36,173

 

34,708

 

 

110,425

 

106,341

 

Subtotal

 

185,545

 

176,557

 

 

562,213

 

536,098

 

Loss on termination of debt

 

-

 

-

 

 

550,735

 

-

 

Foreclosed real estate and repossessed assets, net

 

10,670

 

12,430

 

 

33,776

 

37,915

 

Other credit costs, net

 

593

 

(139

)

 

1,781

 

2,905

 

Total non-interest expense

 

196,808

 

188,848

 

 

1,148,505

 

576,918

 

Income (loss) before income tax expense

 

19,534

 

52,657

 

 

(378,186

)

153,886

 

Income tax expense (benefit)

 

6,304

 

19,159

 

 

(143,398

)

57,017

 

Income (loss) after income tax expense

 

13,230

 

33,498

 

 

(234,788

)

96,869

 

Income attributable to non-controlling interest

 

1,536

 

1,243

 

 

4,881

 

3,918

 

Preferred stock dividends

 

2,372

 

-

 

 

2,372

 

-

 

Net income (loss) available to common stockholders

 

9,322

 

32,255

 

 

(242,041

)

92,951

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for securities gains included in net income

 

(12,912

)

(1,915

)

 

(89,879

)

(1,915

)

Unrealized holding gains arising during the period on securities available for sale

 

16,283

 

116,958

 

 

28,383

 

126,972

 

Foreign currency hedge

 

(630

)

1,319

 

 

(766

)

719

 

Foreign currency translation adjustment

 

640

 

(1,410

)

 

701

 

(876

)

Recognized postretirement prior service cost and transition obligation

 

(7

)

1

 

 

(21

)

3

 

Income tax (expense) benefit

 

(1,010

)

(42,643

)

 

22,823

 

(46,101

)

Total other comprehensive income (loss)

 

2,364

 

72,310

 

 

(38,759

)

78,802

 

Comprehensive income (loss) attributable to common stockholders

$

 

11,686

 

$

104,565

 

$

 

(280,800

)

$

171,753

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

Basic

$

 

.06

 

$

.20

 

$

 

(1.52

)

$

.61

 

Diluted

 

.06

 

.20

 

 

(1.52

)

.60

 

Dividends declared per common share

$

 

.05

 

$

.05

 

$

 

.15

 

$

.15

 

 

See accompanying notes to consolidated financial statements.

 

2


 

 

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

TCF Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

Non-

 

 

 

 

 

Common

 

Preferred

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

controlling

 

Total

 

(Dollars in thousands)

 

Shares Issued

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

Interests

 

Equity

 

Balance, December 31, 2010

 

142,965,012

 

$

-

 

$

1,430

 

$

459,884

 

$

1,049,156

 

$

(15,692

)

 $

(23,115

)

$

1,471,663

 

$

8,500

 

 $

1,480,163

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

-

 

-

 

-

 

-

 

92,951

 

-

 

-

 

92,951

 

3,918

 

96,869

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

78,802

 

-

 

78,802

 

-

 

78,802

 

Comprehensive income

 

-

 

-

 

-

 

-

 

92,951

 

78,802

 

-

 

171,753

 

3,918

 

175,671

 

Public offering of common stock

 

15,081,968

 

-

 

151

 

219,515

 

-

 

-

 

-

 

219,666

 

-

 

219,666

 

Net investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(145

)

(145

)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(22,863

)

-

 

-

 

(22,863

)

-

 

(22,863

)

Grants of restricted stock

 

-

 

-

 

-

 

(146

)

-

 

-

 

146

 

-

 

-

 

-

 

Issuance of common shares

 

1,213,000

 

-

 

12

 

(12

)

-

 

-

 

-

 

-

 

-

 

-

 

Common shares purchased by TCF employee benefit plans

 

1,044,128

 

-

 

10

 

14,282

 

-

 

-

 

-

 

14,292

 

-

 

14,292

 

Cancellation of shares of restricted stock

 

(93,536

)

-

 

(1

)

(397

)

31

 

-

 

-

 

(367

)

-

 

(367

)

Cancellation of common shares for tax withholding

 

(203,155

)

-

 

(2

)

(3,052

)

-

 

-

 

-

 

(3,054

)

-

 

(3,054

)

Amortization of stock compensation

 

-

 

-

 

-

 

8,304

 

-

 

-

 

-

 

8,304

 

-

 

8,304

 

Stock compensation tax benefits

 

-

 

-

 

-

 

377

 

-

 

-

 

-

 

377

 

-

 

377

 

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

 

-

 

-

 

-

 

9,846

 

-

 

-

 

(9,846

)

-

 

-

 

-

 

Balance, September 30, 2011

 

160,007,417

 

$

-

 

$

1,600

 

$

708,601

 

$

1,119,275

 

$

63,110

 

 $

(32,815

)

$

1,859,771

 

$

12,273

 

 $

1,872,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011

 

160,366,380

 

$

-

 

$

1,604

 

$

715,247

 

$

1,127,823

 

$

56,826

 

 $

(33,367

)

$

1,868,133

 

$

10,494

 

 $

1,878,627

 

Comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income after income tax benefit

 

-

 

-

 

-

 

-

 

(239,669

)

-

 

-

 

(239,669

)

4,881

 

(234,788

)

Other comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

(38,759

)

-

 

(38,759

)

-

 

(38,759

)

Comprehensive (loss) income

 

-

 

-

 

-

 

-

 

(239,669

)

(38,759

)

-

 

(278,428

)

4,881

 

(273,547

)

Investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(2,170

)

(2,170

)

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

(2,372

)

-

 

-

 

(2,372

)

-

 

(2,372

)

Dividends on common stock

 

-

 

-

 

-

 

-

 

(23,896

)

-

 

-

 

(23,896

)

-

 

(23,896

)

Issuance of preferred stock

 

-

 

166,721

 

-

 

-

 

-

 

-

 

-

 

166,721

 

-

 

166,721

 

Grants of restricted stock

 

1,784,525

 

-

 

18

 

(18

)

-

 

-

 

-

 

-

 

-

 

-

 

Common shares purchased by TCF employee benefit plans

 

1,367,748

 

-

 

13

 

15,076

 

-

 

-

 

-

 

15,089

 

-

 

15,089

 

Cancellation of shares of restricted stock

 

(61,912

)

-

 

-

 

(201

)

9

 

-

 

-

 

(192

)

-

 

(192

)

Cancellation of common shares for tax withholding

 

(174,786

)

-

 

(2

)

(1,888

)

-

 

-

 

-

 

(1,890

)

-

 

(1,890

)

Amortization of stock compensation

 

-

 

-

 

-

 

8,871

 

-

 

-

 

-

 

8,871

 

-

 

8,871

 

Stock option expirations

 

-

 

-

 

-

 

(161

)

-

 

-

 

-

 

(161

)

-

 

(161

)

Stock compensation tax expense

 

-

 

-

 

-

 

(411

)

-

 

-

 

-

 

(411

)

-

 

(411

)

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

 

-

 

-

 

-

 

10,028

 

-

 

-

 

(10,028

)

-

 

-

 

-

 

Balance, September 30, 2012

 

163,281,955

 

$

166,721

 

$

1,633

 

$

746,543

 

$

861,895

 

$

18,067

 

 $

(43,395

)

$

1,751,464

 

$

13,205

 

 $

1,764,669

 

 

See accompanying notes to consolidated financial statements.

 

3


 

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

 

(In thousands)

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net (loss) income available to common stockholders

$

 

(242,041

)

$

92,951

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

Provision for credit losses

 

198,923

 

141,594

 

Depreciation and amortization

 

78,964

 

55,232

 

Proceeds from sales of loans and leases held for sale

 

114,061

 

-

 

Originations of auto loans held for sale, net of repayments

 

(116,695

)

-

 

Net (decrease) increase in other assets and accrued expenses and other liabilities

 

(83,981

)

94,585

 

Gains on sales of assets, net

 

(126,980

)

(3,761

)

Loss on termination of debt

 

550,735

 

-

 

Net income attributable to non-controlling interest

 

4,881

 

3,918

 

Other, net

 

17,800

 

14,554

 

Total adjustments

 

637,708

 

306,122

 

Net cash provided by operating activities

 

395,667

 

399,073

 

Cash flows from investing activities:

 

 

 

 

 

Loan originations and purchases, net of principal collected on loans and leases

 

(1,800,169

)

564,355

 

Purchases of equipment for lease financing

 

(16,293

)

(615,919

)

Purchase of leasing and equipment finance portfolios

 

-

 

(9,735

)

Purchase of inventory finance portfolios

 

(37,526

)

(5,905

)

Proceeds from sales of loans

 

475,230

 

150,319

 

Proceeds from sales of securities available for sale

 

1,901,460

 

49,593

 

Proceeds from sales of other securities

 

13,116

 

-

 

Purchases of securities available for sale

 

(455,336

)

(1,039,058

)

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

 

168,540

 

446,745

 

Purchases of Federal Home Loan Bank stock

 

(146,405

)

(5,551

)

Redemption of Federal Home Loan Bank stock

 

181,562

 

23,363

 

Proceeds from sales of real estate owned

 

86,528

 

81,893

 

Purchases of premises and equipment

 

(34,505

)

(22,155

)

Other, net

 

24,156

 

25,729

 

Net cash provided by (used in) investing activities

 

360,358

 

(356,326

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

1,504,419

 

735,387

 

Net decrease in short-term borrowings

 

(887

)

(119,586

)

Proceeds from long-term borrowings

 

1,278,233

 

1,513

 

Payments on long-term borrowings

 

(4,153,045

)

(376,184

)

Net proceeds from public offering of preferred stock

 

166,721

 

-

 

Net proceeds from public offering of common stock

 

-

 

219,666

 

Redemption of trust preferred securities

 

(115,010

)

-

 

Proceeds from issuance of subordinated debt

 

109,888

 

-

 

Net investment by non-controlling interest

 

(2,170

)

(145

)

Dividends paid on preferred stock

 

(2,372

)

-

 

Dividends paid on common stock

 

(23,896

)

(22,863

)

Stock compensation tax expense

 

(411

)

-

 

Common shares sold to TCF employee benefit plans

 

14,928

 

14,292

 

Other, net

 

-

 

7,008

 

Net cash (used in) provided by financing activities

 

(1,223,602

)

459,088

 

 

 

 

 

 

 

Cash and due from banks at beginning of period

 

1,389,704

 

663,901

 

Cash and due from banks at end of period

$

 

922,127

 

$

1,165,736

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

$

 

91,133

 

$

176,902

 

Income taxes, net

 

14,227

 

(12,547

)

Transfer of loans to other assets

$

 

104,649

 

$

132,069

 

 

See accompanying notes to consolidated financial statements.

 

4



 

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 in the United States (“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, 2011 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) Business Combinations

 

On November 30, 2011, TCF National Bank (“TCF Bank”), a wholly-owned subsidiary of TCF, acquired 100% of the outstanding common shares of Gateway One Lending & Finance, LLC (“Gateway One”), a privately-held lending company that indirectly originates loans on new and used autos to consumers through established dealer relationships. The acquisition of Gateway One further diversifies the Company’s lending business and provides growth opportunities within the U.S. auto lending marketplace. As a result of the acquisition, Gateway One became a wholly-owned subsidiary of TCF Bank and accordingly, TCF’s Consolidated Statements of Comprehensive Income for the three months ended September 30, 2012 included net interest income, non-interest income and net income of Gateway One totaling $5.8 million, $9.4 million, and $1.3 million, respectively. TCF’s Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2012 included net interest income, non-interest income and net loss of Gateway One totaling $12.1 million, $20.3 million, and $175 thousand, respectively.

 

The following unaudited pro forma financial information presents the combined results of operations of TCF and Gateway One as if the acquisition had been effective January 1, 2011. These results include the impact of amortizing certain purchase accounting adjustments such as intangible assets, compensation expenses and the related impact of the acquisition on income tax expense. There were no material nonrecurring pro forma adjustments directly attributable to the acquisition included within the following pro forma financial information. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had TCF and Gateway One constituted a single entity during such periods. Growth opportunities are expected to be achieved in various amounts at various times during the years subsequent to the acquisition and not ratably over, or at the beginning or end of such periods. No adjustments have been reflected in the following pro forma financial information for anticipated growth opportunities.

 

5



 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands, except per-share data)

 

September 30, 2011

 

September 30, 2011

 

Interest income

$

 

236,917

$

 

712,783

 

Net interest income

 

177,414

 

530,736

 

Non-interest income

 

122,243

 

358,257

 

Net income available to common stockholders

 

32,228

 

94,209

 

Basic net income per common share

$

 

.20

$

 

.61

 

Diluted net income per common share

$

 

.20

$

 

.60

 

 

The total purchase price was allocated to Gateway One’s net tangible and identifiable intangible assets based on their estimated fair values as of November 30, 2011.

 

The following table summarizes the consideration paid for Gateway One and the amounts of the assets acquired and liabilities assumed as of the acquisition date.

 

 

 

At

 

 

 

November 30,

 

(In thousands)

 

2011

 

Cash consideration

$

115,218

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

Cash and cash equivalents

$

2,210

 

Restricted cash

 

18,685

 

Loans held for sale

 

13,711

 

Loans held for investment

 

3,879

 

Intangible assets

 

6,170

 

Interest-only strip

 

21,210

 

Deferred tax asset

 

11,286

 

Deferred stock compensation

 

2,600

 

Other assets

 

1,588

 

Accounts payable

 

(1,043

)

Loan sale liability

 

(6,072

)

Debt assumed

 

(9,988

)

Servicing funds to be remitted

 

(17,901

)

Other liabilities

 

(4,158

)

Total identifiable net assets

$

42,177

 

Goodwill

 

73,041

 

Total net assets acquired

$

115,218

 

 

At the time of acquisition, all of Gateway One’s loans held for investment totaling $3.9 million, had evidence of deteriorated credit quality. At September 30, 2012, $1.7 million remained. The goodwill of $73 million arising from the acquisition consists largely of expected incremental balance sheet and fee growth and cross selling opportunities. The goodwill was assigned to TCF’s Lending segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

 

Pursuant to the terms of the acquisition agreement, three key members of Gateway One’s management team were required to utilize a portion of the consideration paid to them by TCF to separately purchase TCF common stock in the aggregate amount of $2.6 million. These shares of TCF common stock will be retained by a trustee for three years pursuant to the terms of custodial agreements entered into between the trustee, TCF and each individual. Ownership of these shares will be forfeited to TCF if during the three-year period the individual terminates his employment with TCF without cause, or

 

6



 

TCF terminates their employment for good reason, and has been accounted for separately from the acquisition.  Due to the fact that this portion of the purchase consideration is tied to continuing employment, and at risk, the value of these shares has been recorded within other assets and will be recognized as compensation expense ratably throughout the duration of the three-year period. In addition, TCF provided Gateway One $10 million in interim funding prior to the acquisition to facilitate its closing in a timely manner. This loan was executed at prevailing market pricing and terms.

 

(3) Cash and Due from Banks

 

At September 30, 2012 and December 31, 2011, TCF was required by Federal Reserve Board regulations to maintain reserves of $75.2 million and $42.1 million, respectively, in cash on hand or at the Federal Reserve Bank.

 

TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements related to the sale and servicing of auto loans. Cash proceeds from loans serviced for third parties are held in restricted accounts until remitted. TCF also retains restricted cash balances for potential loss recourse on certain sold auto loans. Restricted cash totaling $22 million and $17.5 million was included within cash and due from banks at September 30, 2012 and December 31, 2011, respectively.

 

(4) Investments

 

The carrying values of investments consist of the following.

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

(In thousands)

 

2012

 

2011

 

Federal Home Loan Bank stock, at cost

 

$

83,929

 

$

119,086

 

Federal Reserve Bank stock, at cost

 

36,178

 

31,711

 

Other

 

6,380

 

6,983

 

Total investments

 

$

126,487

 

$

157,780

 

 

The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s current borrowings from the FHLB of Des Moines.  FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB 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 of 1977, as amended.

 

During the first nine months of 2012, TCF recorded impairment charges of $356 thousand on other investments, which had a carrying value of $6.4  million at September 30, 2012. TCF did not record any impairment charges during the three months ended September 30, 2012. During the first nine months of 2011, TCF recorded impairment charges of $16 thousand on other investments, which had a carrying value of $7.1 million at September 30, 2011.

 

7



 

(5) Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 $

530,555

$

 

26,868

$

 

-

$

 

557,423

$

 

2,233,307

$

 

89,029

$

 

-

$

 

2,322,336

 

Other

 

134

 

-

 

-

 

134

 

152

 

-

 

-

 

152

 

Other securities

 

1,642

 

472

 

-

 

2,114

 

1,742

 

-

 

192

 

1,550

 

Total

 $

532,331

$

 

27,340

$

 

-

$

 

559,671

$

 

2,235,201

$

 

89,029

$

 

192

$

 

2,324,038

 

Weighted-average yield

 

3.01

 %

 

 

 

 

 

 

3.79

 %

 

 

 

 

 

 

 

Gains on securities available for sale of $90.2 million were recognized during the first nine months of 2012, resulting from sales of mortgage-backed securities. Impairment charges of $269 thousand and $480 thousand were recognized on other securities during the third quarter and first nine months of 2011, respectively. Impairment charges of $206 thousand were recognized during both the third quarter and first nine months of 2012.

 

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 at December 31, 2011. There were no securities available for sale in a gross unrealized loss position at September 30, 2012. 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

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

At December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Other securities

$

 

1,450

 

$

192

 

$

-

 

$

-

 

$

1,450

 

$

192

 

Total

$

 

1,450

 

$

192

 

$

-

 

$

-

 

$

1,450

 

$

192

 

 

The amortized cost and fair value of securities available for sale at September 30, 2012, by contractual maturity, are shown below. The remaining contractual principal maturities do not consider prepayments.  Remaining expected maturities may differ from contractual maturities because borrowers may have the right to prepay.

 

 

 

 

Amortized

 

 

 

(In thousands)

 

Cost

 

Fair Value

 

Due in one year or less

 

$

-

 

$

-

 

Due in 1-5 years

 

110

 

115

 

Due in 5-10 years

 

120

 

120

 

Due after 10 years

 

530,459

 

557,322

 

No stated maturity

 

1,642

 

2,114

 

Total

 

$

532,331

 

$

559,671

 

 

8


 

 


 

(6) Loans and Leases

 

The following table sets forth information about loans and leases.

 

 

 

At

 

At

 

 

 

 

 

 

September 30,

 

December 31,

 

Percent

 

 

(Dollars in thousands)

 

2012

 

2011

 

Change

 

 

Consumer real estate:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,344,701

 

$

4,742,423

 

(8.4)

 

%

Junior lien

 

2,303,335

 

2,152,868

 

7.0

 

 

Total consumer real estate

 

6,648,036

 

6,895,291

 

(3.6)

 

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

3,106,738

 

3,039,488

 

2.2

 

 

Construction and development

 

130,400

 

159,210

 

(18.1)

 

 

Total commercial real estate

 

3,237,138

 

3,198,698

 

1.2

 

 

Commercial business

 

274,096

 

250,794

 

9.3

 

 

Total commercial

 

3,511,234

 

3,449,492

 

1.8

 

 

Leasing and equipment finance:(1)

 

 

 

 

 

 

 

 

Equipment finance loans

 

1,236,811

 

1,110,803

 

11.3

 

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases

 

1,921,855

 

2,039,096

 

(5.7)

 

 

Sales-type leases

 

24,145

 

29,219

 

(17.4)

 

 

Lease residuals

 

124,148

 

129,100

 

(3.8)

 

 

Unearned income and deferred lease costs

 

(148,982

)

(165,959

)

10.2

 

 

Total lease financings

 

1,921,166

 

2,031,456

 

(5.4)

 

 

Total leasing and equipment finance

 

3,157,977

 

3,142,259

 

.5

 

 

Inventory finance

 

1,466,269

 

624,700

 

134.7

 

 

Auto finance

 

407,091

 

3,628

 

N.M.

 

 

Other

 

27,610

 

34,885

 

(20.9)

 

 

Total loans and leases

 

$

15,218,217

 

$

14,150,255

 

7.5

 

%

N.M. Not Meaningful.

(1) Operating leases of $58 million and $69.6 million at September 30, 2012 and December 31, 2011, respectively, are included in other assets in the Consolidated Statements of Financial Condition.

 

From time to time, TCF sells minimum lease payments to third-party financial institutions at fixed rates.  For those transactions which achieve sale treatment, the related lease cash flow stream is not recognized on TCF’s Consolidated Statements of Financial Condition.  During the three months ended September 30, 2012 and 2011, TCF sold $16.8 million and $36.3 million, respectively, of minimum lease payment receivables, received cash of $18.4 million and $36.4 million, respectively, and recognized a net gain of $1.6 million and $159 thousand, respectively. During the nine months ended September 30, 2012 and 2011, TCF sold $73.5 million and $81.1 million, respectively, of minimum lease payment receivables, received cash of $75.6 million and $87.4 million, respectively, and recognized a net gain of $2.1 million and $6.3 million, respectively. At September 30, 2012 and December 31, 2011, TCF’s lease residuals reported within the table above include $12.8 million and $9.1 million, respectively, related to all historical sales of minimum lease payment receivables.

 

During the three months ended September 30, 2012, TCF sold $161.1 million of consumer auto loans with servicing retained and received cash of $157.6 million, resulting in gains of $7.5 million.  Related to these sales, TCF retained an interest-only strip of $12.6 million.  During the nine months ended September 30, 2012, TCF sold $377.1 million of consumer auto loans with servicing retained and received cash of $368.9 million, resulting in gains of $15.2 million. Related to these sales, TCF retained an interest-only strip of $27.3 million.  At September 30, 2012, interest-only strips and contractual recourse liabilities totaled $39.3 million and $4.1 million, respectively.  At December 31, 2011, interest-only strips and contractual recourse liabilities totaled $22.4 million and $6 million, respectively.  No servicing assets or liabilities related to consumer auto loans were recorded within TCF’s Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities.  Gateway’s managed portfolio, which includes portfolio loans, loans held for sale, and loans sold and services for others, totaled $1 billion and $399.7 million at September 30, 2012 and December 31, 2011, respectively.  Excluding loans in bankruptcy and loans in

 

9



 

the process of repossession, .1% of the auto loans serviced for third parties were 60 or more days past due at September 30, 2012.

 

During the third quarter of 2012, TCF sold $136.7 million of consumer real estate loans without recourse and recognized a $4.6 million gain.

 

 

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

 

Allowance for Loan and Lease Losses  The following tables provide information regarding the allowance for loan

and lease losses.

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Three Months Ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

Charge-offs

 

(76,131

)

(20,813

)

(8,368

)

(602

)

(280

)

(2,520

)

(108,714

)

Recoveries

 

1,460

 

266

 

847

 

158

 

-

 

1,529

 

4,260

 

Net charge-offs

 

(74,671

)

(20,547

)

(7,521

)

(444

)

(280

)

(991

)

(104,454

)

Provision for credit losses

 

66,231

 

23,604

 

3,402

 

313

 

1,887

 

838

 

96,275

 

Transfers and other

 

(705

)

-

 

-

 

62

 

(499

)

1

 

(1,141

)

Balance, at end of quarter

 

$

178,942

 

$

53,756

 

$

21,331

 

$

7,003

 

$

3,059

 

$

750

 

$

264,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

175,716

 

$

50,783

 

$

24,611

 

$

2,941

 

$

-

 

$

1,421

 

$

255,472

 

Charge-offs

 

(44,930

)

(5,290

)

(3,636

)

(284

)

-

 

(3,621

)

(57,761

)

Recoveries

 

1,093

 

250

 

853

 

22

 

-

 

2,141

 

4,359

 

Net charge-offs

 

(43,837

)

(5,040

)

(2,783

)

(262

)

-

 

(1,480

)

(53,402

)

Provision for credit losses

 

45,551

 

3,756

 

1,472

 

258

 

-

 

1,278

 

52,315

 

Transfers and other

 

-

 

-

 

-

 

(60

)

-

 

-

 

(60

)

Balance, at end of quarter

 

$

177,430

 

$

49,499

 

$

23,300

 

$

2,877

 

$

-

 

$

1,219

 

$

254,325

 

 

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Nine Months Ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of year

 

$

183,435

 

$

46,954

 

$

21,173

 

$

2,996

 

$

-

 

$

1,114

 

$

255,672

 

Charge-offs

 

(149,273

)

(31,156

)

(12,811

)

(1,555

)

(364

)

(8,064

)

(203,223

)

Recoveries

 

4,057

 

630

 

3,966

 

243

 

1

 

6,079

 

14,976

 

Net charge-offs

 

(145,216

)

(30,526

)

(8,845

)

(1,312

)

(363

)

(1,985

)

(188,247

)

Provision for credit losses

 

141,428

 

37,328

 

9,003

 

5,281

 

4,262

 

1,621

 

198,923

 

Transfers and other

 

(705

)

-

 

-

 

38

 

(840

)

-

 

(1,507

)

Balance, at end of period

 

$

178,942

 

$

53,756

 

$

21,331

 

$

7,003

 

$

3,059

 

$

750

 

$

264,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Nine Months Ended September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of year

 

$

172,850

 

$

62,478

 

$

26,301

 

$

2,537

 

$

-

 

$

1,653

 

$

265,819

 

Charge-offs

 

(118,462

)

(26,232

)

(12,441

)

(855

)

-

 

(9,333

)

(167,323

)

Recoveries

 

2,650

 

730

 

3,391

 

57

 

-

 

7,435

 

14,263

 

Net charge-offs

 

(115,812

)

(25,502

)

(9,050

)

(798

)

-

 

(1,898

)

(153,060

)

Provision for credit losses

 

120,392

 

12,523

 

6,049

 

1,166

 

-

 

1,464

 

141,594

 

Other

 

-

 

-

 

-

 

(28

)

-

 

-

 

(28

)

Balance, at end of period

 

$

177,430

 

$

49,499

 

$

23,300

 

$

2,877

 

$

-

 

$

1,219

 

$

254,325

 

 

10



 

The following tables provide other information regarding the allowance for loan and lease losses and balances by type of allowance methodology.

 

 

 

At September 30, 2012

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

177,967

 

$

40,416

 

$

20,218

 

$

6,935

 

$

3,040

 

$

750

 

$

249,326

 

Individually evaluated for loss potential

 

975

 

13,340

 

1,113

 

68

 

19

 

-

 

15,515

 

Total

 

$

178,942

 

$

53,756

 

$

21,331

 

$

7,003

 

$

3,059

 

$

750

 

$

264,841

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

6,642,576

 

$

3,221,663

 

$

3,145,715

 

$

1,465,149

 

$

405,388

 

$

27,610

 

$

14,908,101

 

Individually evaluated for loss potential

 

5,460

 

289,571

 

8,469

 

1,120

 

40

 

-

 

304,660

 

Loans acquired with deteriorated credit quality

 

-

 

-