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Section 1: 10-Q (QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D))

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

ý Quarterly Report Pursuant to Section 13 or 15 (d)

of the Securities Exchange Act of 1934

 

For the quarterly period ended

September 30, 2005

 

or

 

o Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 


 

Commission File

No.  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)

 

 

 

Registrant’s telephone number, including area code:

(612) 661-6500

 

 

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 ý

 

No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ý

 

No 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 ý

 

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 14, 2005

Common Stock, $.01 par value

 

133,750,073 shares

 

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

Pages

 

 

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition
at September 30, 2005 and December 31, 2004

3

 

 

 

 

Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 2005 and 2004

4

 

 

 

 

Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2005 and 2004

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the
Nine Months Ended September 30, 2005 and 2004

6

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Consolidated Financial
Condition and Results of Operations for the Three and Nine
Months Ended September 30, 2005 and 2004

19

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

 

Item 4.

Controls and Procedures

44

 

 

 

 

Supplementary Information

45

 

 

 

Part II.

Other Information

 

 

 

 

 

Items 1-6

47

 

 

 

Signatures

48

 

 

Index to Exhibits

49

 

2



 

PART 1 - FINANCIAL INFORMATION

ITEM 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(Dollars in thousands, except per-share data)

(Unaudited)

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

361,595

 

$

359,798

 

Investments

 

79,583

 

103,226

 

Securities available for sale

 

1,318,787

 

1,619,941

 

Loans held for sale

 

230,571

 

154,279

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

5,035,661

 

4,418,588

 

Commercial real estate

 

2,241,069

 

2,154,396

 

Commercial business

 

438,028

 

424,135

 

Leasing and equipment finance

 

1,424,317

 

1,375,372

 

Subtotal

 

9,139,075

 

8,372,491

 

Residential real estate

 

815,893

 

1,014,166

 

Total loans and leases

 

9,954,968

 

9,386,657

 

Allowance for loan and lease losses

 

(59,016

)

(79,878

)

Net loans and leases

 

9,895,952

 

9,306,779

 

Premises and equipment

 

352,154

 

326,667

 

Goodwill

 

152,599

 

152,599

 

Mortgage servicing rights

 

37,420

 

46,442

 

Other assets

 

308,428

 

270,836

 

 

 

$

12,737,089

 

$

12,340,567

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,218,993

 

$

3,905,987

 

Savings

 

2,140,483

 

1,927,872

 

Money market

 

632,367

 

659,686

 

Subtotal

 

6,991,843

 

6,493,545

 

Certificates of deposit

 

1,866,425

 

1,468,650

 

Total deposits

 

8,858,268

 

7,962,195

 

Short-term borrowings

 

1,084,933

 

1,056,111

 

Long-term borrowings

 

1,547,690

 

2,048,492

 

Total borrowings

 

2,632,623

 

3,104,603

 

Accrued expenses and other liabilities

 

279,129

 

315,351

 

Total liabilities

 

11,770,020

 

11,382,149

 

Stockholders’ 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; 184,395,593 and 184,939,094 shares issued

 

1,844

 

1,849

 

Additional paid-in capital

 

496,605

 

518,741

 

Retained earnings, subject to certain restrictions

 

1,499,427

 

1,385,760

 

Accumulated other comprehensive loss

 

(13,596

)

(1,415

)

Treasury stock at cost, 50,645,520 and 47,752,934 shares, and other

 

(1,017,211

)

(946,517

)

Total stockholders’ equity

 

967,069

 

958,418

 

 

 

$

12,737,089

 

$

12,340,567

 

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per-share data)

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

163,178

 

$

133,295

 

$

464,736

 

$

386,709

 

Securities available for sale

 

17,893

 

20,414

 

60,713

 

61,159

 

Loans held for sale

 

2,759

 

2,931

 

7,579

 

9,112

 

Investments

 

463

 

773

 

2,609

 

2,441

 

Total interest income

 

184,293

 

157,413

 

535,637

 

459,421

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

26,539

 

10,318

 

63,123

 

30,331

 

Borrowings

 

29,684

 

22,605

 

84,106

 

63,688

 

Total interest expense

 

56,223

 

32,923

 

147,229

 

94,019

 

Net interest income

 

128,070

 

124,490

 

388,408

 

365,402

 

Provision for credit losses

 

3,394

 

2,644

 

1,385

 

6,874

 

Net interest income after provision for credit losses

 

124,676

 

121,846

 

387,023

 

358,528

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

69,431

 

71,353

 

192,286

 

204,128

 

Card revenue

 

21,025

 

16,339

 

58,384

 

45,854

 

ATM revenue

 

10,646

 

11,474

 

31,173

 

32,609

 

Investments and insurance revenue

 

2,682

 

3,057

 

8,326

 

9,949

 

Subtotal

 

103,784

 

102,223

 

290,169

 

292,540

 

Leasing and equipment finance

 

10,197

 

6,864

 

31,982

 

29,276

 

Mortgage banking

 

982

 

4,132

 

2,340

 

13,082

 

Other

 

7,743

 

2,584

 

18,392

 

6,657

 

Fees and other revenue

 

122,706

 

115,803

 

342,883

 

341,555

 

Gains on sales of securities available for sale

 

995

 

3,679

 

10,671

 

16,396

 

Total non-interest income

 

123,701

 

119,482

 

353,554

 

357,951

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

80,402

 

78,010

 

243,826

 

236,486

 

Occupancy and equipment

 

25,931

 

23,673

 

76,081

 

70,560

 

Advertising and promotions

 

6,578

 

7,377

 

19,603

 

19,785

 

Deposit account losses

 

6,680

 

7,421

 

14,116

 

16,949

 

Other

 

34,412

 

31,445

 

98,735

 

88,758

 

Total non-interest expense

 

154,003

 

147,926

 

452,361

 

432,538

 

Income before income tax expense

 

94,374

 

93,402

 

288,216

 

283,941

 

Income tax expense

 

28,888

 

31,690

 

88,624

 

96,350

 

Net income

 

$

65,486

 

$

61,712

 

$

199,592

 

$

187,591

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.50

 

$

.45

 

$

1.50

 

$

1.37

 

Diluted

 

$

.50

 

$

.45

 

$

1.50

 

$

1.36

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.2125

 

$

.1875

 

$

.6375

 

$

.5625

 

 

See accompanying notes to consolidated financial statements.

 

4



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

199,592

 

$

187,591

 

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

 

 

 

 

 

Depreciation and amortization

 

34,351

 

29,437

 

Mortgage servicing rights amortization and impairment

 

9,022

 

8,725

 

Provision for credit losses

 

1,385

 

6,874

 

Proceeds from sales of loans held for sale

 

75,380

 

812,638

 

Principal collected on loans held for sale

 

10,748

 

7,071

 

Originations and purchases of loans held for sale

 

(162,289

)

(815,659

)

Net increase in other assets and accrued expenses and other liabilities

 

(62,461

)

(1,858

)

Gains on sales of assets

 

(20,605

)

(17,102

)

Other, net

 

1,278

 

(4,006

)

Total adjustments

 

(113,191

)

26,120

 

Net cash provided by operating activities

 

86,401

 

213,711

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

3,293,322

 

2,823,395

 

Originations and purchases of loans

 

(3,379,197

)

(3,055,828

)

Purchases of equipment for lease financing

 

(563,352

)

(493,160

)

Proceeds from sales of securities available for sale

 

1,017,711

 

970,249

 

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

 

188,621

 

287,662

 

Purchases of securities available for sale

 

(914,277

)

(1,213,660

)

Net decrease (increase) in Federal Home Loan Bank stock

 

22,420

 

(19,254

)

Proceeds from sales of real estate owned

 

17,518

 

30,660

 

Acquisitions, net of cash acquired

 

-

 

(4,326

)

Purchases of premises and equipment

 

(58,903

)

(57,801

)

Proceeds from sales of premises and equipment

 

19,769

 

124

 

Other, net

 

4,947

 

49

 

Net cash used by investing activities

 

(351,421

)

(731,890

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

896,073

 

183,074

 

Net increase (decrease) in short-term borrowings

 

28,822

 

(43,765

)

Proceeds from long-term borrowings

 

574,833

 

542,768

 

Payments on long-term borrowings

 

(1,059,470

)

(41,664

)

Purchases of common stock

 

(93,499

)

(67,900

)

Dividends on common stock

 

(86,118

)

(78,359

)

Other, net

 

6,176

 

8,622

 

Net cash provided by financing activities

 

266,817

 

502,776

 

 

 

 

 

 

 

Net increase (decrease) in cash and due from banks

 

1,797

 

(15,403

)

Cash and due from banks at beginning of period

 

359,798

 

370,054

 

Cash and due from banks at end of period

 

$

361,595

 

$

354,651

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

140,978

 

$

90,359

 

Income taxes

 

$

114,500

 

$

98,341

 

Transfer of loans and leases to other assets

 

$

20,455

 

$

20,103

 

 

See accompanying notes to consolidated financial statements.

 

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

 

 

Shares Issued

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

Balance, December 31, 2003

 

185,026,710

 

$

925

 

$

518,878

 

$

1,234,804

 

$

5,652

 

$

(839,401

)

$

920,858

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

187,591

 

-

 

-

 

187,591

 

Other comprehensive loss

 

-

 

-

 

-

 

-

 

(4,181

)

-

 

(4,181

)

Comprehensive income (loss)

 

-

 

-

 

-

 

187,591

 

(4,181

)

-

 

183,410

 

Dividends on common stock

 

-

 

-

 

-

 

(78,359

)

-

 

-

 

(78,359

)

Stock split

 

-

 

925

 

(925

)

-

 

-

 

-

 

-

 

Repurchase of 2,414,890 shares

 

-

 

-

 

-

 

-

 

-

 

(67,900

)

(67,900

)

Issuance of 132,654 treasury shares

 

-

 

-

 

1,400

 

-

 

-

 

(1,400

)

-

 

Cancellation of shares

 

(37,480

)

-

 

(829

)

-

 

-

 

544

 

(285

)

Cancellation of shares for tax withholding

 

(24,628

)

-

 

(675

)

-

 

-

 

-

 

(675

)

Amortization of stock compensation

 

-

 

-

 

-

 

-

 

-

 

3,999

 

3,999

 

Exercise of stock options, 155,832 shares

 

-

 

-

 

(689

)

-

 

-

 

2,685

 

1,996

 

Tax benefits realized on vesting of restricted stock grants and exercise of stock options

 

-

 

-

 

2,222

 

-

 

-

 

-

 

2,222

 

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

 

-

 

-

 

(1,845

)

-

 

-

 

1,845

 

-

 

Balance, September 30, 2004

 

184,964,602

 

$

1,850

 

$

517,537

 

$

1,344,036

 

$

1,471

 

$

(899,628

)

$

965,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2004

 

184,939,094

 

$

1,849

 

$

518,741

 

$

1,385,760

 

$

(1,415

)

$

(946,517

)

$

958,418

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

199,592

 

-

 

-

 

199,592

 

Other comprehensive loss

 

-

 

-

 

-

 

-

 

(12,181

)

-

 

(12,181

)

Comprehensive income (loss)

 

-

 

-

 

-

 

199,592

 

(12,181

)

-

 

187,411

 

Dividends on common stock

 

-

 

-

 

-

 

(86,118

)

-

 

-

 

(86,118

)

Repurchase of 3,450,000 shares

 

-

 

-

 

-

 

-

 

-

 

(93,499

)

(93,499

)

Issuance of 505,350 treasury shares

 

-

 

-

 

4,821

 

-

 

-

 

(4,821

)

-

 

Cancellation of shares

 

(104,604

)

(5

)

(2,523

)

193

 

-

 

1,663

 

(672

)

Cancellation of shares for tax withholding

 

(438,897

)

-

 

(13,479

)

-

 

-

 

-

 

(13,479

)

Amortization of stock compensation

 

-

 

-

 

-

 

-

 

-

 

4,355

 

4,355

 

Exercise of stock options, 52,064 shares

 

-

 

-

 

(576

)

-

 

-

 

963

 

387

 

Tax benefits realized on vesting of restricted stock grants and exercise of stock options

 

-

 

-

 

10,266

 

-

 

-

 

-

 

10,266

 

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

 

-

 

-

 

(20,645

)

-

 

-

 

20,645

 

-

 

Balance, September 30, 2005

 

184,395,593

 

$

1,844

 

$

496,605

 

$

1,499,427

 

$

(13,596

)

$

(1,017,211

)

$

967,069

 

 

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 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, 2004 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 and 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.  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 accruals) considered necessary for a 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, which approximate their fair values, consist of the following:

 

 

 

At

 

At

 

(In thousands)

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

Federal Home Loan Bank (FHLB) stock, at cost:

 

 

 

 

 

Des Moines

 

$

53,670

 

$

76,090

 

Chicago

 

4,600

 

4,600

 

Topeka

 

151

 

151

 

Subtotal

 

58,421

 

80,841

 

Federal Reserve Bank stock, at cost

 

20,635

 

21,865

 

Interest-bearing deposits with banks

 

527

 

520

 

Total investments

 

$

79,583

 

$

103,226

 

 

The investments in FHLB stock are required investments related to TCF’s borrowings from these banks.  All new FHLB borrowing activity is done with the FHLB of Des Moines.  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 jointly and severally liable for repayment of each others debt.  Therefore, TCF’s investments in these banks could be adversely impacted by the operations of the other FHLBs.

 

7



 

(3)          Securities Available for Sale

 

Securities available for sale consist of the following:

 

 

 

At September 30, 2005

 

At December 31, 2004

 

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agencies

 

$

1,333,171

 

$

220

 

$

(21,320

)

$

1,312,071

 

$

1,614,513

 

$

2,045

 

$

(4,034

)

$

1,612,524

 

Other

 

5,919

 

-

 

(203

)

5,716

 

6,639

 

-

 

(222

)

6,417

 

Other securities

 

1,000

 

-

 

-

 

1,000

 

1,000

 

-

 

-

 

1,000

 

Total

 

$

1,340,090

 

$

220

 

$

(21,523

)

$

1,318,787

 

$

1,622,152

 

$

2,045

 

$

(4,256

)

$

1,619,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average yield

 

5.12

%

 

 

 

 

 

 

5.13

%

 

 

 

 

 

 

 

The following table shows the gross unrealized losses and fair value in the securities available for sale portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2005.  TCF has reviewed these securities and has concluded that the unrealized losses are temporary and no impairment has occurred at September 30, 2005.

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agencies

 

$

1,238,832

 

$

(19,227

)

$

67,805

 

$

(2,093

)

$

1,306,637

 

$

(21,320

)

Other

 

-

 

-

 

4,866

 

(203

)

4,866

 

(203

)

Total

 

$

1,238,832

 

$

(19,227

)

$

72,671

 

$

(2,296

)

$

1,311,503

 

$

(21,523

)

 

8



 

(4)          Loans and Leases

 

The following table sets forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale and operating leases:

 

 

 

At

 

At

 

 

 

(Dollars in thousands)

 

September 30,

 

December 31,

 

Percentage

 

 

 

2005

 

2004

 

Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

First mortgage lien

 

$

3,288,333

 

$

2,894,174

 

13.6

%

Junior lien

 

1,708,998

 

1,487,583

 

14.9

 

Total consumer home equity

 

4,997,331

 

4,381,757

 

14.0

 

Other

 

38,330

 

36,831

 

4.1

 

Total consumer home equity and other

 

5,035,661

 

4,418,588

 

14.0

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

2,038,208

 

1,958,377

 

4.1

 

Construction and development

 

202,861

 

196,019

 

3.5

 

Total commercial real estate

 

2,241,069

 

2,154,396

 

4.0

 

Commercial business

 

438,028

 

424,135

 

3.3

 

Total commercial

 

2,679,097

 

2,578,531

 

3.9

 

Leasing and equipment finance:

 

 

 

 

 

 

 

Equipment finance loans

 

351,347

 

334,352

 

5.1

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

1,130,308

 

1,067,845

 

5.8

 

Sales-type leases

 

16,922

 

22,742

 

(25.6

)

Lease residuals, excluding leveraged lease

 

33,492

 

35,163

 

(4.8

)

Unearned income and deferred lease costs

 

(107,752

)

(103,516

)

4.1

 

Investment in leveraged lease

 

-

 

18,786

 

(100.0

)

Total lease financings

 

1,072,970

 

1,041,020

 

3.1

 

Total leasing and equipment finance

 

1,424,317

 

1,375,372

 

3.6

 

Total consumer, commercial and leasing and equipment finance

 

9,139,075

 

8,372,491

 

9.2

 

Residential real estate

 

815,893

 

1,014,166

 

(19.6

)

Total loans and leases

 

$

9,954,968

 

$

9,386,657

 

6.1

 

 

Included in the direct financing leases are $47.7 million and $38.5 million at September 30, 2005 and December 31, 2004, respectively, of equipment that has been installed under lease contracts that have not yet commenced due to additional equipment pending installation under the lease.  TCF receives pro-rata rent payments for the variable interim period until the lease contract commences and the fixed, non-cancelable, lease term begins.  TCF recognizes these interim payments in the month they are earned and records the income in interest income on direct finance leases.

 

At December 31, 2004, TCF had an investment in a leveraged lease of a Boeing 767-300 aircraft leased to Delta Airlines, Inc. (“Delta”).  Delta declared bankruptcy on September 14, 2005, and TCF charged off its $18.8 million investment in the related leveraged lease in the third quarter of 2005.

 

9



 

(5)          Goodwill and Intangible Assets

 

Goodwill and intangible assets as of September 30, 2005 are summarized as follows:

 

 

 

At September 30, 2005

 

At December 31, 2004

 

 

 

Gross

 

Accumulated

 

Net

 

Gross

 

Accumulated

 

Net

 

(In thousands)

 

Amount

 

Amortization

 

Amount

 

Amount

 

Amortization

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

81,062

 

$

43,642

 

$

37,420

 

$

83,668

 

$

37,226

 

$

46,442

 

Deposit base intangibles

 

21,180

 

18,179

 

3,001

 

21,180

 

16,935

 

4,245

 

Total

 

$

102,242

 

$

61,821

 

$

40,421

 

$

104,848

 

$

54,161

 

$

50,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill related to the Banking Segment

 

$

141,245

 

 

 

$

141,245

 

$

141,245

 

 

 

$

141,245

 

Goodwill related to the Leasing Segment

 

11,354

 

 

 

11,354

 

11,354

 

 

 

11,354

 

Total

 

$

152,599

 

 

 

$

152,599

 

$

152,599

 

 

 

$

152,599

 

 

Amortization expense for intangible assets was $2.9 million for the third quarter of 2005, compared with $3.2 million for the same 2004 period.  Amortization expense for intangible assets was $9.3 million and $11 million for the nine months ended September 30, 2005 and 2004, respectively.  The following table shows the estimated future amortization expense for amortizable intangible assets based on existing asset balances and the interest rate environment as of September 30, 2005.  The Company’s actual amortization expense in any given period may be significantly different from the estimated amounts depending upon the addition of new intangible assets, changes in mortgage interest rates, prepayment rates and market conditions.

 

 

 

Mortgage

 

Deposit Base

 

 

 

(In thousands)

 

Servicing Rights

 

Intangibles

 

Total

 

 

 

 

 

 

 

 

 

Estimated Amortization Expense:

 

 

 

 

 

 

 

For the remaining three months ending December 31, 2005

 

$

2,509

 

$

415

 

$

2,924

 

 

 

 

 

 

 

 

 

2006

 

8,264

 

1,630

 

9,894

 

2007

 

6,635

 

956

 

7,591

 

2008

 

5,402

 

-

 

5,402

 

2009

 

4,430

 

-

 

4,430

 

2010

 

3,636

 

-

 

3,636

 

 

10



 

(6)          Mortgage Banking

 

The activity in mortgage servicing rights and the related valuation allowance is summarized as follows:

 

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

(In thousands)

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights at beginning of period

 

$

43,436

 

$

53,290

 

$

49,942

 

$

54,036

 

Amortization

 

(2,516

)

(2,808

)

(8,022

)

(9,725

)

Impairment write-down

 

-

 

-

 

(1,000

)

-

 

Loan originations

 

-

 

1,992

 

-

 

8,163

 

Mortgage servicing rights at end of period

 

40,920

 

52,474

 

40,920

 

52,474

 

Valuation allowance at beginning of period

 

(3,500

)

(2,000

)

(3,500

)

(2,000

)

(Provision) recovery for impairment

 

-

 

1,000

 

(1,000

)

1,000

 

Impairment write-down

 

-

 

-

 

1,000

 

-

 

Valuation allowance at end of period

 

(3,500

)

(1,000

)

(3,500

)

(1,000

)

Mortgage servicing rights, net

 

$

37,420

 

$

51,474

 

$

37,420

 

$

51,474

 

 

The estimated fair value of mortgage servicing rights at September 30, 2005 was approximately $45.2 million. The estimated fair value of mortgage servicing rights is based on estimated cash flows discounted using rates management believes are commensurate with the risks involved. Assumptions regarding prepayments, defaults and interest rates are determined using available market information.

 

The following table represents the components of mortgage banking revenue:

 

 

 

Three Months
Ended September 30,

 

Change

 

Nine Months
Ended September 30,

 

Change

 

(Dollars in thousands)

 

2005

 

2004

 

$

 

%

 

2005

 

2004

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing income

 

$

3,329

 

$

4,215

 

$

(886

)

(21.0

)%

$

10,827

 

$

13,179

 

$

(2,352

)

(17.8

)%

Less mortgage servicing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

2,516

 

2,808

 

(292

)

(10.4

)

8,022

 

9,725

 

(1,703

)

(17.5

)

Provision (recovery) for impairment

 

-

 

(1,000

)

1,000

 

100.0

 

1,000

 

(1,000

)

2,000

 

N.M.

 

Subtotal

 

2,516

 

1,808

 

708

 

39.2

 

9,022

 

8,725

 

297

 

3.4

 

Net servicing income

 

813

 

2,407

 

(1,594

)

(66.2

)

1,805

 

4,454

 

(2,649

)

(59.5

)

Gains on sales of loans (1)

 

-

 

1,442

 

(1,442

)

(100.0

)

-

 

6,746

 

(6,746

)

(100.0

)

Other income

 

169

 

283

 

(114

)

(40.3

)

535

 

1,882

 

(1,347

)

(71.6

)

Total mortgage banking revenue

 

$

982

 

$

4,132

 

$

(3,150

)

(76.2

)

$

2,340

 

$

13,082

 

$

(10,742

)

(82.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Beginning in 2005, TCF’s mortgage banking business no longer originates or sells loans.

N.M. Not Meaningful

 

At September 30, 2005 and 2004, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approximately $3.6 billion and $4.7 billion, respectively. At September 30, 2005 and 2004, TCF had custodial funds of $103 million and $116.2 million, respectively, which are included in deposits in the Consolidated Statements of Financial Condition. These custodial deposits relate primarily to mortgage servicing operations and represent funds due to investors on mortgage loans serviced by TCF and customer funds held for real estate taxes and insurance.

 

11



 

(7)          Long-term Borrowings

 

 

 

 

 

At September 30, 2005

 

At December 31, 2004

 

 

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

Year of

 

 

 

Average

 

 

 

Average

 

(Dollars in thousands)

 

Maturity

 

Amount

 

Rate

 

Amount

 

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances and securities sold under repurchase agreements

 

2005

 

$

142,000

 

6.11

%

$

1,191,500

 

3.04

%

 

 

2006

 

303,000

 

5.10

 

303,000

 

4.64

 

 

 

2007

 

200,000

 

3.65

 

-

 

-

 

 

 

2009

 

122,500

 

5.25

 

122,500

 

5.25

 

 

 

2010

 

100,000

 

6.02

 

100,000

 

6.02

 

 

 

2011

 

200,000

 

4.85

 

200,000

 

4.85

 

 

 

2015

 

300,000

 

3.94

 

-

 

-

 

Total Federal Home Loan Bank advances and securities sold under repurchase agreements

 

 

 

1,367,500

 

4.78

 

1,917,000

 

3.78

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated bank notes

 

2014

 

74,331

 

5.27

 

74,209

 

5.27

 

 

 

2015

 

49,269

 

5.37

 

-

 

-

 

Total subordinated bank notes

 

 

 

123,600

 

5.31

 

74,209

 

5.27

 

 

 

 

 

 

 

 

 

 

 

 

 

Discounted lease rentals

 

2005

 

7,561

 

6.07

 

27,871

 

5.63

 

 

 

2006

 

24,295

 

6.26

 

15,080

 

5.75

 

 

 

2007

 

13,813

 

6.51

 

5,183

 

5.91

 

 

 

2008

 

3,243

 

6.72

 

305

 

6.41

 

 

 

2009

 

903

 

6.74

 

44

 

6.59

 

 

 

2010

 

175

 

6.75

 

-

 

-

 

Total discounted lease rentals

 

 

 

49,990

 

6.34

 

48,483

 

5.70

 

 

 

 

 

 

 

 

 

 

 

 

 

Other borrowings

 

2005

 

-

 

-

 

2,200

 

4.50

 

 

 

2006

 

2,200

 

4.50

 

2,200

 

4.50

 

 

 

2007

 

2,200

 

4.50

 

2,200

 

4.50

 

 

 

2008

 

2,200

 

4.50

 

2,200

 

4.50

 

Total other borrowings

 

 

 

6,600

 

4.50

 

8,800

 

4.50

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term borrowings

 

 

 

$

1,547,690

 

4.87

 

$

2,048,492

 

3.88

 

 

Included in long-term borrowings at September 30, 2005 were $425.5 million of fixed-rate Federal Home Loan Bank (“FHLB”) advances, which are callable quarterly at par until maturity.  In addition, TCF has $200 million of repurchase agreements which are callable quarterly beginning in 2008 and $100 million of repurchase agreements which can be called in 2010.  If the FHLB advances are called, replacement funding will be provided by the FHLB at the then-prevailing market rate of interest for the remaining term-to-maturity, subject to standard terms and conditions.  The probability that these advances and repurchase agreements will be called depends primarily on the level of related interest rates during the call period.  At September 30, 2005, the contract rate exceeded the market rate on all of the fixed-rate callable advances and repurchase agreements.

 

TCF National Bank (“TCF Bank”), a wholly-owned subsidiary of TCF, has $75 million of subordinated notes due 2014 and $50 million of subordinated notes due 2015. The $75 million notes bear interest at a fixed rate of 5.00% through June 14, 2009, and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.63%. The $50 million notes bear interest at a fixed rate of 5.00% through March 14, 2010, and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.56%. These subordinated notes may be redeemed by TCF Bank at par after June 14, 2009 and March 14, 2010, respectively, and qualify as Tier 2 or supplementary capital for regulatory purposes, subject to certain limitations.  TCF Bank paid the proceeds from these offerings to TCF.

 

12



 

(8)          Stockholders’ Equity

 

Treasury stock and other consists of the following:

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

(In thousands)

 

2005

 

2004

 

 

 

 

 

 

 

Treasury stock, at cost

 

$

(945,823

)

$

(862,543

)

Shares held in trust for deferred compensation plans, at cost

 

(50,130

)

(70,775

)

Unamortized stock compensation

 

(21,258

)

(13,199

)

 

 

$

(1,017,211

)

$

(946,517

)

 

At September 30, 2005, TCF had 6.7 million shares remaining in its stock repurchase programs authorized by the Board of Directors. The decrease in shares held in trust for deferred compensation plans from December 31, 2004 to September 30, 2005 was due to elections by certain executives and senior management to un-defer previously deferred compensation, as allowed under the new Section 409A of the Internal Revenue Code. The increase in unamortized stock compensation is primarily due to a performance-based restricted stock grant to TCF’s Chairman of 300,000 shares of TCF common stock. This grant was made on January 25, 2005. The performance period for this grant begins January 1, 2006 and ends January 1, 2009.

 

(9)          Regulatory Capital Requirements

 

The following table sets forth TCF’s and TCF 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 excess over minimum capital requirements:

 

(Dollars in thousands)

 

Actual

 

Minimum Capital
Requirement

 

Excess

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of September 30, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

$

824,690

 

6.54

%

$

378,578

 

3.00

%

$

446,112

 

3.54

%

TCF National Bank

 

799,961

 

6.34

 

378,272

 

3.00

 

421,689

 

3.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

824,690

 

8.72

 

378,488

 

4.00

 

446,202

 

4.72

 

TCF National Bank

 

799,961

 

8.47

 

377,727

 

4.00

 

422,234

 

4.47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

1,008,858

 

10.66

 

756,976

 

8.00

 

251,882

 

2.66

 

TCF National Bank

 

984,129

 

10.42

 

755,454

 

8.00

 

228,675

 

2.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

$

803,870

 

6.63

%

$

363,940

 

3.00

%

$

439,930

 

3.63

%

TCF National Bank

 

775,100

 

6.41

 

362,911

 

3.00

 

412,189

 

3.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

803,870

 

9.12

 

352,592

 

4.00

 

451,278

 

5.12

 

TCF National Bank

 

775,100

 

8.81

 

351,865

 

4.00

 

423,235

 

4.81