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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

March 31, 2006

 

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer “ in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer 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

 

April 30, 2006

Common Stock, $.01 par value

 

131,897,467 shares

 

 

 

 

 

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

 

 

Part I.

Financial Information

Pages

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

Consolidated Statements of Financial Condition

 

 

at March 31, 2006 and December 31, 2005

3

 

 

 

 

Consolidated Statements of Income for the Three

 

 

Months Ended March 31, 2006 and 2005

4

 

 

 

 

Consolidated Statements of Cash Flows for the

 

 

Three Months Ended March 31, 2006 and 2005

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the

 

 

Three Months Ended March 31, 2006 and 2005

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

 

 

 

Months Ended March 31, 2006 and 2005

18

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

 

 

Supplementary Information

36

 

 

 

 

Part II.

Other Information

 

 

 

 

 

 

Items 1- 6

38

 

 

 

 

Signatures

39

 

 

Index to Exhibits

40

 

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)

 

2006

 

2005

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

330,891

 

$

374,701

 

Investments

 

72,082

 

79,943

 

Securities available for sale

 

1,816,135

 

1,648,615

 

Education loans held for sale

 

234,324

 

229,820

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

5,369,300

 

5,187,584

 

Commercial real estate

 

2,394,722

 

2,297,500

 

Commercial business

 

470,117

 

435,233

 

Leasing and equipment finance

 

1,575,483

 

1,503,794

 

Subtotal

 

9,809,622

 

9,424,111

 

Residential real estate

 

732,912

 

770,441

 

Total loans and leases

 

10,542,534

 

10,194,552

 

Allowance for loan and lease losses

 

(59,378

)

(60,396

)

Net loans and leases

 

10,483,156

 

10,134,156

 

Premises and equipment

 

375,679

 

365,146

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

367,457

 

380,380

 

Total assets

 

$

13,832,323

 

$

13,365,360

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,448,688

 

$

4,279,853

 

Savings

 

2,360,246

 

2,238,204

 

Money market

 

637,212

 

677,017

 

Certificates of deposit

 

2,128,723

 

1,915,620

 

Total deposits

 

9,574,869

 

9,110,694

 

Short-term borrowings

 

346,528

 

472,126

 

Long-term borrowings

 

2,688,131

 

2,511,010

 

Total borrowings

 

3,034,659

 

2,983,136

 

Accrued expenses and other liabilities

 

254,495

 

273,058

 

Total liabilities

 

12,864,023

 

12,366,888

 

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; 184,220,375 and 184,386,193 shares issued

 

1,842

 

1,844

 

Additional paid-in capital

 

468,968

 

497,270

 

Retained earnings, subject to certain restrictions

 

1,564,207

 

1,536,611

 

Accumulated other comprehensive loss

 

(38,121

)

(21,215

)

Treasury stock at cost, 52,397,230 and 50,609,970 shares, and other

 

(1,028,596

)

(1,016,038

)

Total stockholders’ equity

 

968,300

 

998,472

 

Total liabilities and stockholders’ equity

 

$

13,832,323

 

$

13,365,360

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

March 31,

 

(In thousands, except per-share data)

 

2006

 

2005

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

176,983

 

$

146,544

 

Securities available for sale

 

23,699

 

21,495

 

Education loans held for sale

 

4,347

 

2,254

 

Investments

 

677

 

1,052

 

Total interest income

 

205,706

 

171,345

 

Interest expense:

 

 

 

 

 

Deposits

 

39,847

 

15,938

 

Borrowings

 

34,691

 

26,354

 

Total interest expense

 

74,538

 

42,292

 

Net interest income

 

131,168

 

129,053

 

Provision for credit losses

 

1,507

 

(3,436

)

Net interest income after provision for credit losses

 

129,661

 

132,489

 

Non-interest income:

 

 

 

 

 

Fees and service charges

 

61,555

 

57,938

 

Card revenue

 

21,262

 

17,642

 

ATM revenue

 

9,099

 

9,732

 

Investments and insurance revenue

 

2,488

 

2,853

 

Subtotal

 

94,404

 

88,165

 

Leasing and equipment finance

 

11,915

 

10,693

 

Other

 

11,180

 

7,957

 

Fees and other revenue

 

117,499

 

106,815

 

Gains on sales of securities available for sale

 

 

5,239

 

Total non-interest income

 

117,499

 

112,054

 

Non-interest expense:

 

 

 

 

 

Compensation and employee benefits

 

86,168

 

81,451

 

Occupancy and equipment

 

28,051

 

25,379

 

Advertising and promotions

 

5,716

 

6,247

 

Deposit account losses

 

4,013

 

3,567

 

Other

 

35,976

 

31,373

 

Total non-interest expense

 

159,924

 

148,017

 

Income before income tax expense

 

87,236

 

96,526

 

Income tax expense

 

29,014

 

33,061

 

Net income

 

$

58,222

 

$

63,465

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic

 

$

.45

 

$

.47

 

Diluted

 

$

.45

 

$

.47

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.23

 

$

.2125

 

 

See accompanying notes to consolidated financial statements.

 

4



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2006

 

2005

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

58,222

 

$

63,465

 

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

 

 

 

 

 

Depreciation and amortization

 

14,222

 

11,003

 

Provision for credit losses

 

1,507

 

(3,436

)

Proceeds from sales of education loans held for sale

 

87,454

 

18,158

 

Principal collected on education loans held for sale

 

2,305

 

1,560

 

Originations and purchases of education loans held for sale

 

(94,485

)

(81,226

)

Net increase in other assets and accrued expenses and other liabilities

 

(10,922

)

(22,547

)

Stock compensation tax benefits

 

 

9,585

 

Gains on sales of assets, net

 

(4,540

)

(10,939

)

Other, net

 

(567

)

3,467

 

Total adjustments

 

(5,026

)

(74,375

)

Net cash provided (used) by operating activities

 

53,196

 

(10,910

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

937,735

 

967,757

 

Originations and purchases of loans

 

(1,068,794

)

(969,689

)

Purchases of equipment for lease financing

 

(241,821

)

(176,975

)

Proceeds from sales of securities available for sale

 

 

471,244

 

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

 

52,178

 

51,083

 

Purchases of securities available for sale

 

(245,476

)

(603,618

)

Purchases of Federal Home Loan Bank stock

 

(22,223

)

(17,823

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

33,390

 

15,645

 

Proceeds from sales of real estate owned

 

5,216

 

5,286

 

Purchases of premises and equipment

 

(19,782

)

(17,888

)

Proceeds from sales of premises and equipment

 

3,590

 

17,000

 

Proceeds from sale of mortgage servicing rights

 

15,161

 

 

Other, net

 

(4,956

)

247

 

Net cash used by investing activities

 

(555,782

)

(257,731

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

464,175

 

432,818

 

Net decrease in short-term borrowings

 

(125,598

)

(177,720

)

Proceeds from long-term borrowings

 

385,140

 

258,810

 

Payments on long-term borrowings

 

(197,003

)

(205,366

)

Purchases of common stock

 

(60,659

)

(50,586

)

Dividends paid on common stock

 

(30,754

)

(29,003

)

Stock compensation tax benefits

 

19,965

 

 

Other, net

 

3,510

 

3,886

 

Net cash provided by financing activities

 

458,776

 

232,839

 

Net decrease in cash and due from banks

 

(43,810

)

(35,802

)

Cash and due from banks at beginning of period

 

374,701

 

359,798

 

Cash and due from banks at end of period

 

$

330,891

 

$

323,996

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

69,820

 

$

41,431

 

Income taxes

 

$

325

 

$

481

 

Transfer of loans and leases to other assets

 

$

8,803

 

$

7,566

 

 

See accompanying notes to consolidated financial statements.

 

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

Number of

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

(Dollars in thousands)

 

Shares Issued

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

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

 

 

 

 

63,465

 

 

 

63,465

 

Other comprehensive loss

 

 

 

 

 

(13,341

)

 

(13,341

)

Comprehensive income (loss)

 

 

 

 

63,465

 

(13,341

)

 

50,124

 

Dividends on common stock

 

 

 

 

(29,003

)

 

 

(29,003

)

Repurchase of 1,800,000 shares

 

 

 

 

 

 

(50,586

)

(50,586

)

Issuance of 334,700 shares

 

 

 

3,517

 

 

 

(3,517

)

 

Cancellation of shares

 

(22,900

)

 

(532

)

36

 

 

307

 

(189

)

Cancellation of shares for tax withholding

 

(438,897

)

(4

)

(13,479

)

 

 

 

(13,483

)

Amortization of stock compensation

 

 

 

 

 

 

1,359

 

1,359

 

Exercise of stock options, 10,000 shares

 

 

 

(63

)

 

 

181

 

118

 

Stock compensation tax benefits

 

 

 

9,585

 

 

 

 

9,585

 

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

 

 

 

(20,033

)

 

 

20,033

 

 

Balance, March 31, 2005

 

184,477,297

 

$

1,845

 

$

497,736

 

$

1,420,258

 

$

(14,756

)

$

(978,740

)

$

926,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2005

 

184,386,193

 

$

1,844

 

$

497,270

 

$

1,536,611

 

$

(21,215

)

$

(1,016,038

)

$

998,472

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

58,222

 

 

 

58,222

 

Other comprehensive loss

 

 

 

 

 

(16,906

)

 

(16,906

)

Comprehensive income (loss)

 

 

 

 

58,222

 

(16,906

)

 

41,316

 

Dividends on common stock

 

 

 

 

(30,754

)

 

 

(30,754

)

Repurchase of 2,400,000 shares

 

 

 

 

 

 

(60,659

)

(60,659

)

Issuance of 612,740 shares

 

 

 

(11,474

)

 

 

11,474

 

 

Cancellation of shares

 

(89,335

)

(1

)

(150

)

128

 

 

 

(23

)

Cancellation of shares for tax withholding

 

(76,483

)

(1

)

(2,071

)

 

 

 

(2,072

)

Elimination of unamortized stock compensation

 

 

 

(20,386

)

 

 

 

 

20,386

 

 

Amortization of stock compensation

 

 

 

2,055

 

 

 

 

2,055

 

Stock compensation tax benefits

 

 

 

19,965

 

 

 

 

19,965

 

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

 

 

 

(16,241

)

 

 

16,241

 

 

Balance, March 31, 2006

 

184,220,375

 

$

1,842

 

$

468,968

 

$

1,564,207

 

$

(38,121

)

$

(1,028,596

)

$

968,300

 

 

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, 2005 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. 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 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

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2006

 

2005

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

42,803

 

$

53,970

 

Chicago and Topeka

 

4,795

 

4,795

 

Subtotal

 

47,598

 

58,765

 

Federal Reserve Bank stock, at cost

 

20,655

 

20,646

 

Interest-bearing deposits with banks

 

3,829

 

532

 

Total investments

 

$

72,082

 

$

79,943

 

 

The investments in FHLB stock are required investments related to TCF’s borrowings from these banks. All new FHLB borrowing activity since 2000 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 other’s 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 March 31, 2006

 

At December 31, 2005

 

 

 

 

 

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

 

$

1,868,574

 

$

119

 

$

(58,794

)

$

1,809,899

 

$

1,675,203

 

$

874

 

$

(33,921

)

$

1,642,156

 

Other

 

5,426

 

 

(190

)

5,236

 

5,655

 

 

(196

)

5,459

 

Other securities

 

1,000

 

 

 

1,000

 

1,000

 

 

 

1,000

 

Total

 

$

1,875,000

 

$

119

 

$

(58,984

)

$

1,816,135

 

$

1,681,858

 

$

874

 

$

(34,117

)

$

1,648,615

 

Weighted-average yield

 

5.33

%

 

 

 

 

 

 

5.26

%

 

 

 

 

 

 

 

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, as of March 31, 2006. Unrealized losses on securities available for sale are due to 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. Accordingly, TCF has concluded that the unrealized losses are temporary and no impairment has occurred at March 31, 2006.

 

 

 

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

 

$

1,558,765

 

$

(46,256

)

$

246,796

 

$

(12,538

)

$

1,805,561

 

$

(58,794

)

Other

 

 

 

4,559

 

(190

)

4,559

 

(190

)

Total

 

$

1,558,765

 

$

(46,256

)

$

251,355

 

$

(12,728

)

$

1,810,120

 

$

(58,984

)

 

 

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:

 

 

 

At

 

At

 

 

 

 

 

March 31,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2006

 

2005

 

Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

First mortgage lien

 

$

3,474,310

 

$

3,375,380

 

2.9

%

Junior lien

 

1,857,069

 

1,773,308

 

4.7

 

Total consumer home equity

 

5,331,379

 

5,148,688

 

3.5

 

Other

 

37,921

 

38,896

 

(2.5

)

Total consumer home equity and other

 

5,369,300

 

5,187,584

 

3.5

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

2,226,301

 

2,117,953

 

5.1

 

Construction and development

 

168,421

 

179,547

 

(6.2

)

Total commercial real estate

 

2,394,722

 

2,297,500

 

4.2

 

Commercial business

 

470,117

 

435,233

 

8.0

 

Total commercial

 

2,864,839

 

2,732,733

 

4.8

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

Equipment finance loans

 

413,253

 

387,171

 

6.7

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases (2)

 

1,235,468

 

1,180,370

 

4.7

 

Sales-type leases

 

17,183

 

18,495

 

(7.1

)

Lease residuals

 

33,036

 

32,882

 

0.5

 

Unearned income and deferred lease costs

 

(123,457

)

(115,124

)

(7.2

)

Total lease financings

 

1,162,230

 

1,116,623

 

4.1

 

Total leasing and equipment finance

 

1,575,483

 

1,503,794

 

4.8

 

Total consumer, commercial and leasing and equipment finance

 

9,809,622

 

9,424,111

 

4.1

 

Residential real estate

 

732,912

 

770,441

 

(4.9

)

Total loans and leases

 

$

10,542,534

 

$

10,194,552

 

3.4

 

 

(1)

 

Operating leases of $61.1 million at March 31, 2006 and $56.7 million at December 31, 2005 are included as a component of Other Assets on TCF’s Statements of Financial Condition.

(2)

 

Included in the direct financing leases are $53.3 million and $52.7 million at March 31, 2006 and December 31, 2005, respectively, of equipment that has been installed under lease contracts that have not yet commenced due to additional equipment pending installation under the lease.

 

9



 

(5)          Mortgage Banking

 

During the first quarter of 2006, TCF sold its $3.3 billion third-party mortgage servicing portfolio and recognized a gain of $2.3 million. The activity in mortgage servicing rights and the related valuation allowance is summarized as follows:

 

 

 

Three Months

 

 

 

Ended March 31,

 

(In thousands)

 

2006

 

2005

 

Mortgage servicing rights at beginning of period

 

$

38,334

 

$

49,942

 

Amortization

 

(1,285

)

(2,941

)

Impairment write-down

 

 

(500

)

Sale of mortgage servicing rights

 

(37,049

)

 

Mortgage servicing rights at end of period

 

 

46,501

 

Valuation allowance at beginning of period

 

(1,000

)

(3,500

)

Recovery

 

1,000

 

 

Impairment write-down

 

 

500

 

Valuation allowance at end of period

 

 

(3,000

)

Mortgage servicing rights, net

 

$

 

$

43,501

 

 

(6)          Long-term Borrowings

 

 

 

 

 

At March 31, 2006

 

At December 31, 2005

 

 

 

 

 

 

 

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

 

2006

 

$

103,000

 

5.04

$

303,000

 

5.22

%

 

 

2007

 

200,000

 

3.65

 

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

 

1,400,000

 

4.16

 

1,400,000

 

4.16

 

 

 

2016

 

300,000

 

4.62

 

 

 

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

 

 

 

2,425,500

 

4.40

 

2,325,500

 

4.45

 

Subordinated bank notes

 

2014

 

74,415

 

5.27

 

74,373

 

5.27

 

 

 

2015

 

49,342

 

5.37

 

49,305

 

5.37

 

 

 

2016

 

74,321

 

5.63

 

 

 

Total subordinated bank notes

 

 

 

198,078

 

5.43

 

123,678

 

5.31

 

Discounted lease rentals

 

2006

 

22,139

 

6.69

 

28,193

 

6.49

 

 

 

2007

 

21,284

 

6.89

 

18,323

 

6.79

 

 

 

2008

 

9,607

 

7.04

 

6,569

 

7.03

 

 

 

2009

 

3,299

 

6.97

 

1,811

 

7.02

 

 

 

2010

 

1,393

 

6.93

 

336

 

7.18

 

 

 

2011

 

231

 

6.90

 

 

 

Total discounted lease rentals

 

 

 

57,953

 

6.84

 

55,232

 

6.68

 

Other borrowings

 

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

 

6,600

 

4.50

 

Total long-term borrowings

 

 

 

$

2,688,131

 

4.53

 

$

2,511,010

 

4.54

 

 

10



 

Included in Federal Home Loan Bank (“FHLB”) advances and repurchase agreements at March 31, 2006 were $422.5 million of fixed-rate FHLB advances, which are callable quarterly by our counterparties at par until maturity. In addition, TCF has $1.6 billion of repurchase agreements and $100 million of FHLB advances which are callable during various years from 2008 through 2011. If $330.5 million of FHLB Des Moines advances are called, replacement funding will be provided by the FHLB Des Moines 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 March 31, 2006, the contract rate exceeded the market rate on all of the fixed-rate callable FHLB advances. The next call year and stated maturity year for the callable advances and repurchase agreements outstanding at March 31, 2006 were as follows:

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Year

 

Next Call

 

Weighted-Average Rate

 

Stated Maturity

 

Weighted-Average Rate

 

 

 

 

 

 

 

 

 

 

 

2006

 

$

422,500

 

5.23

$

 

%

2008

 

1,100,000

 

4.11

 

 

 

2009

 

200,000

 

4.52

 

122,500

 

5.25

 

2010

 

300,000

 

4.33

 

100,000

 

6.02

 

2011

 

100,000

 

4.82

 

200,000

 

4.85

 

2015

 

 

 

1,400,000

 

4.16

 

2016

 

 

 

300,000

 

4.62

 

Total

 

$

2,122,500

 

4.44

 

$

2,122,500

 

4.44

 

 

During the first quarter of 2006, TCF National Bank (“TCF Bank”), a wholly-owned subsidiary of TCF, issued $75 million of subordinated notes due in 2016. The notes bear interest at a fixed rate of 5.50% until February 1, 2016. These notes qualify as Tier 2 or supplementary capital for regulatory purposes, subject to certain limitations. TCF Bank paid the proceeds from the offering to TCF as a permanent capital distribution to be used for general corporate purposes, which include repurchases in the open market of TCF common stock.

 

(7)          Stockholders’ Equity

 

Treasury stock and other consists of the following:

(In thousands)

 

At
March 31,
2006

 

At
December 31,
2005

 

Treasury stock, at cost

 

$

994,344

 

$

945,159

 

Shares held in trust for deferred compensation plans, at cost

 

34,252

 

50,493

 

Unamortized stock compensation

 

 

20,386

 

Total

 

$

1,028,596

 

$

1,016,038

 

 

TCF repurchased 2.4 million shares of its common stock during the first quarter of 2006, compared with 1.8 million shares for the same 2005 period. At March 31, 2006, TCF had 4.3 million shares remaining in its stock repurchase program authorized by its Board of Directors. See Note 8 for additional information on the change in unamortized stock compensation.

 

(8)          Stock Compensation

 

Effective January 1, 2006, TCF adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment, for the accounting for stock compensation. The adoption of this Statement had no material impact on TCF’s financial statements as TCF was previously accounting for stock compensation under Statement of Financial Accounting Standards No. 123. Both Statements utilize the fair value method at grant date for stock compensation and expense such cost. In accordance with the adoption of SFAS 123R, TCF eliminated its

 

11



 

unamortized stock compensation from Treasury Stock and Other against Additional Paid-in Capital in its Consolidated Statements of Financial Condition as of January 1, 2006. Also, TCF now reports cash retained from excess tax benefits on stock compensation (“stock compensation tax benefits”) as cash flows from financing activities in its Consolidated Statements of Cash Flows. Prior to January 1, 2006, stock compensation tax benefits were classified as cash flows from operating activities.

 

The fair value of restricted stock is determined on the date of grant and amortized to compensation expense over the longer of the service period or performance period, but in no event beyond an employee’s retirement date.  For performance-based restricted stock, TCF estimates the degree to which performance conditions will be met to determine the number of shares which will vest and the related compensation expense prior to the vesting date.  Compensation expense is adjusted in the period such estimates change.  Non-forfeitable dividends are recorded to retained earnings for shares of restricted stock which are expected to vest and to compensation expense for shares of restricted stock which are not expected to vest.

 

Income tax benefits related to stock compensation in excess of grant date fair value are recognized as an increase to additional paid-in capital upon vesting and delivery of the stock.  Any income tax benefits that are less than grant date fair value would be recognized as a reduction of additional paid-in capital to the extent of previously recognized income tax benefits and then as compensation expense for the remaining amount.

 

The TCF Financial Incentive Stock Program (the “Program”) was adopted to enable TCF to attract and retain key personnel. Under the Program, no more than 5% of the shares of TCF common stock outstanding on the date of initial shareholder approval may be awarded. At March 31, 2006, there were 4,192,488 shares reserved for issuance under the Program, including 259,800 shares related to outstanding stock options, which are all fully vested.

 

At March 31, 2006, there were 1,500,541 shares of performance-based restricted stock that will vest only if certain earnings per share goals and service conditions are achieved. Failure to achieve the goals and service conditions will result in all or a portion of the shares being forfeited. Other restricted stock grants vest over periods from three to seven years. The weighted-average grant date fair value of restricted stock granted for the quarters ended March 31, 2006 and 2005 was $25.18 and $28.71, respectively. Compensation expense for restricted stock was $1.9 million for the quarter ended March 31, 2006, compared with $1.1 million for the quarter ended March 31, 2005, and the recognized tax benefit was $634 thousand and $388 thousand, respectively, for such periods. Unrecognized stock compensation for restricted stock awards was $25.7 million with a weighted-average remaining life of 2.7 years at March 31, 2006, compared with $21.1 million with a weighted-average remaining life of 2.2 years at March 31, 2005.

 

 

The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 2005:

 

 

 

Restricted Stock

 

 

 

Shares

 

Price Range

 

Outstanding at December 31, 2005

 

2,309,276

 

$9.87-$30.28

 

Granted

 

588,850

 

25.18

 

Forfeited

 

(89,335

)

9.87-30.28

 

Vested

 

(224,900

)

18.03-24.10

 

Outstanding at March 31, 2006

 

2,583,891

 

9.87-30.28

 

 

Prior to 2000, TCF had also issued stock options under the Program that generally become exercisable over a period of one to ten years from the date of the grant and expire after ten years. All outstanding options have a fixed exercise price equal to the market price of TCF common stock on the date of grant. As of March 31, 2006, all outstanding stock options are fully vested. Stock options outstanding and exercisable at March 31, 2006 had exercise prices ranging from $11.78 to $16.64, a weighted-average price of $13.76 and a weighted-average remaining contractual life of three years.

 

12



 

(9)          Regulatory Capital Requirements

 

TCF is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal banking agencies that could have a direct material effect on TCF’s financial statements. Also, in general, TCF Bank may not declare or pay a dividend to TCF in excess of 100% of its net profits for the current year combined with its retained net profits for the preceding two calendar years without prior approval of the Office of the Comptroller of Currency (“OCC”).

 

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 minimum and well-capitalized capital requirements:

 

 

 

 

 

 

 

Minimum

 

Well-Capitalized

 

 

 

Actual

 

Capital Requirement

 

Capital Requirement

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of March 31, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

850,945

 

6.25

$

408,453

 

3.00

N.A.

 

N.A.

 

TCF Bank

 

803,357

 

5.91

 

407,818

 

3.00

 

$

679,696

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

850,945

 

8.36

 

407,111

 

4.00

 

610,667

 

6.00

 

TCF Bank

 

803,357

 

7.91

 

406,359

 

4.00

 

609,538

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,110,762

 

10.91

 

814,222

 

8.00

 

1,017,778

 

10.00

 

TCF Bank

 

1,063,174

 

10.47

 

812,717

 

8.00

 

1,015,896

 

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

863,955

 

6.61

$

392,306

 

3.00

N.A.

 

N.A.

 

TCF Bank

 

835,121

 

6.39

 

392,000

 

3.00

 

$

653,333

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

863,955

 

8.79

 

393,128

 

4.00

 

589,693

 

6.00

 

TCF Bank

 

835,121

 

8.52

 

392,275

 

4.00

 

588,413

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,049,615

 

10.68

 

786,257

 

8.00

 

982,821

 

10.00

 

TCF Bank

 

1,020,781

 

10.41

 

784,551

 

8.00

 

980,688

 

10.00

 

 

N.A. Not Applicable.

 

At March 31, 2006, TCF and TCF Bank exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the Federal Reserve Board (“FRB”) and the OCC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.

 

(10)    Employee Benefit Plans

 

In February 2006, TCF amended the Pension Plan to discontinue compensation credits for all participants effective March 31, 2006. Interest credits will continue to be paid until participants withdraw their money from the Pension Plan. All unvested participant accounts became vested on March 31, 2006. As a result of this amendment, TCF recorded a $400 thousand curtailment gain in the first quarter of 2006 and is remeasuring its projected benefit obligation.

 

Effective April 1, 2006, TCF amended the TCF Employees Stock Purchase Plan to increase the employer match to 75 cents per dollar for employees with five to ten years of service, up to a maximum company contribution of 4.5% of the employee’s salary, and to $1 per dollar for employee’s with over ten years of service, up to a maximum company contribution of 6% of the employee’s salary. Employee contributions vest

 

13



 

immediately while the Company’s matching contributions are subject to a graduated vesting schedule based on an employee’s years of vesting service over five years.

 

The following table sets forth the net benefit cost included in compensation and employee benefits expense for TCF’s Pension Plan and Postretirement Plan for the three months ended March 31, 2006 and 2005:

 

 

 

Pension Plan

 

Postretirement Plan

 

 

 

Three Months Ended March 31,

 

Three Months Ended March 31,

 

(In thousands)

 

2006

 

2005

 

2006

 

2005

 

Service cost

 

$

1,379

 

$

1,326

 

$

7

 

$

8

 

Interest cost

 

749

 

857

 

108

 

138

 

Expected return on plan assets

 

(1,263

)

(1,432

)

 

 

Amortization of transition obligation

 

 

 

25

 

33

 

Amortization of prior service cost

 

(21

)

(62

)

 

 

Recognized actuarial loss

 

575

 

262

 

30

 

35

 

Plan curtailment

 

(400

)

 

 

 

Net periodic benefit cost

 

$

1,019

 

$

951

 

$

170

 

$

214

 

 

TCF did not make any contributions to the Pension Plan in the first quarter of 2006 and 2005. During the first quarter of 2006 and 2005, TCF paid $184 thousand and $213 thousand, respectively, for the Postretirement Plan.

 

(11)    Business Segments

 

Banking and leasing and equipment finance have been identified as reportable operating segments. Banking includes the following operating units that provide financial services to customers: deposits and investments products, commercial banking, consumer lending and treasury services. Management of TCF’s banking area is organized by state. The separate state operations have been aggregated for purposes of segment disclosures. Leasing and equipment finance provides a broad range of comprehensive leasing and equipment finance products addressing the financing needs of diverse businesses. In addition, TCF’s bank holding company (“parent company”) and corporate functions provide data processing, bank operations and other professional services to the operating segments.

 

TCF evaluates performance and allocates resources based on the segments’ net income. The business segments follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies. TCF generally accounts for inter-segment sales and transfers at cost.

 

14



 

The following table sets forth certain information about the reported profit or loss and assets of each of TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals. The “other” category in the table below includes TCF’s parent company, corporate functions and mortgage banking.

 

 

 

 

 

Leasing and

 

 

 

Eliminations

 

 

 

 

 

 

 

Equipment

 

 

 

and

 

 

 

(In thousands)

 

Banking

 

Finance

 

Other

 

Reclassifications

 

Consolidated

 

At or For the Three Months Ended March 31, 2006:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

178,420

 

$

27,286

 

$

 

$

 

$

205,706

 

Non-interest income

 

101,205

 

11,915

 

4,379

 

 

117,499

 

Total

 

$

279,625

 

$

39,201

 

$

4,379

 

$

 

$

323,205

 

Net interest income

 

$

116,000

 

$

14,089

 

$

575

 

$

504

 

$

131,168

 

Provision for credit losses

 

2,725

 

(1,218

)

 

 

1,507

 

Non-interest income

 

101,205

 

11,915

 

36,726

 

(32,347

)

117,499

 

Non-interest expense

 

144,468

 

12,944

 

34,355

 

(31,843

)

159,924

 

Income tax expense

 

23,053

 

5,149

 

812

 

 

29,014

 

Net income

 

$

46,959

 

$

9,129

 

$

2,134

 

$

 

$

58,222

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

141,245

 

$

11,354

 

$

 

$

 

$

152,599

 

Total assets

 

$

13,377,626

 

$

1,711,923

 

$

161,356

 

$

(1,418,582

)

$

13,832,323

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended March 31, 2005:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

147,498

 

$

23,791

 

$

56

 

$

 

$

171,345

 

Non-interest income

 

100,118

 

10,770

 

1,166

 

 

112,054

 

Total

 

$

247,616

 

$

34,561

 

$

1,222

 

$

 

$

283,399

 

Net interest income

 

$

112,929

 

$

14,723

 

$

756

 

$

645

 

$

129,053

 

Provision for credit losses

 

(4,188

)

752

 

 

 

(3,436

)

Non-interest income

 

100,118

 

10,770

 

31,606

 

(30,440

)

112,054

 

Non-interest expense

 

136,301

 

11,555

 

29,956

 

(29,795

)

148,017

 

Income tax expense

 

27,689

 

4,703

 

669

 

 

33,061

 

Net income

 

$

53,245

 

$

8,483

 

$

1,737

 

$

 

$

63,465

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

141,245

 

$

11,354

 

$

 

$

 

$

152,599

 

Total assets

 

$

12,280,159

 

$

1,477,348

 

$

173,165

 

$

(1,197,464

)

$

12,733,208

 

 

15



 

(12)    Earnings Per Common Share

 

The computation of basic and diluted earnings per share is presented in the following table:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands, except per-share data)

 

2006

 

2005

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

 

 

 

 

Net income

 

$

58,222

 

$

63,465

 

Weighted-average shares outstanding

 

132,753,183

 

136,188,790

 

Restricted stock

 

(2,471,368

)

(2,199,030

)

Weighted-average common shares outstanding for basic earnings per common share

 

130,281,815

 

133,989,760

 

Basic earnings per common share

 

$

.45

 

$

.47

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

 

 

 

 

Net income

 

$

58,222

 

$

63,465

 

Weighted-average number of common shares outstanding adjusted for effect of dilutive securities: