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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

 

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

of the Securities Exchange Act of 1934

 

For the quarterly period ended

June 30, 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 x

 

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 x

 

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 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

 

July 31, 2006

Common Stock, $.01 par value

 

131,034,838 shares

 

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
 
INDEX
 

Part I.

Financial Information

Pages

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition

 

 

at June 30, 2006 and December 31, 2005

3

 

 

 

 

Consolidated Statements of Income for the Three

 

 

and Six Months Ended June 30, 2006 and 2005

4

 

 

 

 

Consolidated Statements of Cash Flows for the

 

 

Six Months Ended June 30, 2006 and 2005

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the

 

 

Six Months Ended June 30, 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 and Six

 

 

 

Months Ended June 30, 2006 and 2005

19

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

 

Supplementary Information

38

 

 

 

Part II.

Other Information

 

 

 

 

 

Items 1- 6

39

 

 

 

Signatures

41

 

 

 

Index to Exhibits

42

 

2



 

 

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2006

 

2005

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

371,942

 

$

374,701

 

Investments

 

76,124

 

79,943

 

Securities available for sale

 

1,781,995

 

1,648,615

 

Education loans held for sale

 

227,703

 

229,820

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

5,579,647

 

5,187,584

 

Commercial real estate

 

2,411,028

 

2,297,500

 

Commercial business

 

543,314

 

435,233

 

Leasing and equipment finance

 

1,677,641

 

1,503,794

 

Subtotal

 

10,211,630

 

9,424,111

 

Residential real estate

 

695,213

 

770,441

 

Total loans and leases

 

10,906,843

 

10,194,552

 

Allowance for loan and lease losses

 

(59,246

)

(60,396

)

Net loans and leases

 

10,847,597

 

10,134,156

 

Premises and equipment

 

384,360

 

365,146

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

356,029

 

380,380

 

Total assets

 

$

14,198,349

 

$

13,365,360

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,341,029

 

$

4,279,853

 

Savings

 

2,297,636

 

2,238,204

 

Money market

 

603,024

 

677,017

 

Certificates of deposit

 

2,382,273

 

1,915,620

 

Total deposits

 

9,623,962

 

9,110,694

 

Short-term borrowings

 

561,374

 

472,126

 

Long-term borrowings

 

2,778,277

 

2,511,010

 

Total borrowings

 

3,339,651

 

2,983,136

 

Accrued expenses and other liabilities

 

257,351

 

273,058

 

Total liabilities

 

13,220,964

 

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; 184,202,447 and 184,386,193 shares issued

 

1,842

 

1,844

 

Additional paid-in capital

 

468,110

 

476,884

 

Retained earnings, subject to certain restrictions

 

1,601,009

 

1,536,611

 

Accumulated other comprehensive loss

 

(55,515

)

(21,215

)

Treasury stock at cost, 52,813,430 and 50,609,970 shares, and other

 

(1,038,061

)

(995,652

)

Total stockholders’ equity

 

977,385

 

998,472

 

Total liabilities and stockholders’ equity

 

$

14,198,349

 

$

13,365,360

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands, except per-share data)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

188,988

 

$

155,014

 

$

365,971

 

$

301,558

 

Securities available for sale

 

25,156

 

21,325

 

48,855

 

42,820

 

Education loans held for sale

 

4,205

 

2,566

 

8,552

 

4,820

 

Investments

 

792

 

1,094

 

1,469

 

2,146

 

Total interest income

 

219,141

 

179,999

 

424,847

 

351,344

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

46,247

 

20,646

 

86,094

 

36,584

 

Borrowings

 

37,452

 

28,068

 

72,143

 

54,422

 

Total interest expense

 

83,699

 

48,714

 

158,237

 

91,006

 

Net interest income

 

135,442

 

131,285

 

266,610

 

260,338

 

Provision for credit losses

 

3,097

 

1,427

 

4,604

 

(2,009

)

Net interest income after provision for credit losses

 

132,345

 

129,858

 

262,006

 

262,347

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

71,099

 

66,755

 

132,654

 

124,693

 

Card revenue

 

22,984

 

19,717

 

44,246

 

37,359

 

ATM revenue

 

9,762

 

10,795

 

18,861

 

20,527

 

Investments and insurance revenue

 

2,894

 

2,791

 

5,382

 

5,644

 

Subtotal

 

106,739

 

100,058

 

201,143

 

188,223

 

Leasing and equipment finance

 

12,552

 

11,092

 

24,467

 

21,785

 

Other

 

4,331

 

2,051

 

15,511

 

10,008

 

Fees and other revenue

 

123,622

 

113,201

 

241,121

 

220,016

 

Gains on sales of securities available for sale

 

 

4,437

 

 

9,676

 

Total non-interest income

 

123,622

 

117,638

 

241,121

 

229,692

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

85,083

 

81,973

 

171,251

 

163,424

 

Occupancy and equipment

 

27,998

 

24,771

 

56,049

 

50,150

 

Advertising and promotions

 

6,755

 

6,778

 

12,471

 

13,025

 

Deposit account losses

 

5,673

 

3,708

 

9,686

 

7,275

 

Other

 

36,537

 

32,950

 

72,513

 

64,323

 

Total non-interest expense

 

162,046

 

150,180

 

321,970

 

298,197

 

Income before income tax expense

 

93,921

 

97,316

 

181,157

 

193,842

 

Income tax expense

 

26,860

 

26,675

 

55,874

 

59,736

 

Net income

 

$

67,061

 

$

70,641

 

$

125,283

 

$

134,106

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.52

 

$

.53

 

$

.97

 

$

1.01

 

Diluted

 

$

.52

 

$

.53

 

$

.96

 

$

1.00

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.23

 

$

.2125

 

$

.46

 

$

.425

 

See accompanying notes to consolidated financial statements.

 

4



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

(In thousands)

 

2006

 

2005

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

125,283

 

$

134,106

 

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

 

 

 

 

 

Depreciation and amortization

 

28,732

 

22,488

 

Provision for credit losses

 

4,604

 

(2,009

)

Proceeds from sales of education loans held for sale

 

112,294

 

34,645

 

Principal collected on education loans held for sale

 

7,371

 

3,099

 

Originations and purchases of education loans held for sale

 

(117,578

)

(96,515

)

Net increase in other assets and accrued expenses and other liabilities

 

(4,538

)

(73,323

)

Gains on sales of assets, net

 

(5,160

)

(15,793

)

Other, net

 

(752

)

7,394

 

Total adjustments

 

24,973

 

(120,014

)

Net cash provided by operating activities

 

150,256

 

14,092

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

1,884,467

 

2,068,488

 

Originations and purchases of loans

 

(2,119,237

)

(2,133,869

)

Purchases of equipment for lease financing

 

(522,788

)

(368,254

)

Proceeds from sales of securities available for sale

 

 

917,209

 

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

 

111,176

 

117,401

 

Purchases of securities available for sale

 

(297,451

)

(807,328

)

Purchases of Federal Home Loan Bank stock

 

(31,123

)

(31,190

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

38,266

 

29,068

 

Proceeds from sales of real estate owned

 

11,842

 

12,351

 

Purchases of premises and equipment

 

(37,168

)

(37,431

)

Proceeds from sales of premises and equipment

 

4,274

 

17,000

 

Proceeds from sale of mortgage servicing rights

 

37,731

 

 

Other, net

 

(3,945

)

2,458

 

Net cash used by investing activities

 

(923,956

)

(214,097

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

513,268

 

462,131

 

Net increase (decrease) in short-term borrowings

 

89,248

 

(10,529

)

Proceeds from long-term borrowings

 

494,136

 

269,422

 

Payments on long-term borrowings

 

(216,090

)

(394,997

)

Purchases of common stock

 

(73,864

)

(82,382

)

Dividends paid on common stock

 

(61,090

)

(57,606

)

Stock compensation tax benefits

 

20,714

 

9,939

 

Other, net

 

4,619

 

5,387

 

Net cash provided by financing activities

 

770,941

 

201,365

 

Net (decrease) increase in cash and due from banks

 

(2,759

)

1,360

 

Cash and due from banks at beginning of period

 

374,701

 

359,798

 

Cash and due from banks at end of period

 

$

371,942

 

$

361,158

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

147,830

 

$

89,066

 

Income taxes

 

$

24,718

 

$

74,003

 

Transfer of loans and leases to other assets

 

$

21,435

 

$

16,924

 

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

 

$

505,542

 

$

 1,385,760

 

$

(1,415

)

$

(933,318

)

$

 958,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

134,106

 

 

 

134,106

 

Other comprehensive income

 

 

 

 

 

3,016

 

 

3,016

 

Comprehensive income

 

 

 

 

134,106

 

3,016

 

 

137,122

 

Dividends on common stock

 

 

 

 

(57,606

)

 

 

(57,606

)

Repurchase of 3,050,000 shares

 

 

 

 

 

 

(82,382

)

(82,382

)

Issuance of 482,950 shares

 

 

 

(8,838

)

 

 

8,838

 

 

Cancellation of shares

 

(74,719

)

(1

)

(605

)

133

 

 

 

(473

)

Cancellation of shares for tax withholding

 

(438,897

)

(4

)

(13,479

)

 

 

 

(13,483

)

Amortization of stock compensation

 

 

 

2,857

 

 

 

 

2,857

 

Exercise of stock options, 18,000 shares

 

 

 

(164

)

 

 

329

 

165

 

Stock compensation tax benefits

 

 

 

9,939

 

 

 

 

9,939

 

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

 

 

 

(20,980

)

 

 

20,980

 

 

Balance, June 30, 2005

 

184,425,478

 

$

 1,844

 

$

474,272

 

$

 1,462,393

 

$

1,601

 

$

(985,553

)

$

 954,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2005

 

184,386,193

 

$

 1,844

 

$

476,884

 

$

 1,536,611

 

$

 (21,215

)

$

 (995,652

)

$

 998,472

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

125,283

 

 

 

125,283

 

Other comprehensive loss

 

 

 

 

 

(34,300

)

 

(34,300

)

Comprehensive income (loss)

 

 

 

 

125,283

 

(34,300

)

 

90,983

 

Dividends on common stock

 

 

 

 

(61,090

)

 

 

(61,090

)

Repurchase of 2,900,000 shares

 

 

 

 

 

 

(73,864

)

(73,864

)

Issuance of 676,540 shares

 

 

 

(12,685

)

 

 

12,685

 

 

Cancellation of shares

 

(105,785

)

(1

)

(272

)

205

 

 

 

(68

)

Cancellation of shares for tax withholding

 

(77,961

)

(1

)

(2,110

)

 

 

 

(2,111

)

Amortization of stock compensation

 

 

 

4,113

 

 

 

 

4,113

 

Exercise of stock options, 20,000 shares

 

 

 

(144

)

 

 

380

 

236

 

Stock compensation tax benefits

 

 

 

20,714

 

 

 

 

20,714

 

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

 

 

 

(18,390

)

 

 

18,390

 

 

Balance, June 30, 2006

 

184,202,447

 

$

 1,842

 

$

 468,110

 

$

 1,601,009

 

$

 (55,515

)

$

 (1,038,061

)

$

 977,385

 

 

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

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2006

 

2005

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

46,996

 

$

53,970

 

Chicago and Topeka

 

4,626

 

4,795

 

Subtotal

 

51,622

 

58,765

 

Federal Reserve Bank stock, at cost

 

18,955

 

20,646

 

Interest-bearing deposits with banks

 

5,547

 

532

 

Total investments

 

$

76,124

 

$

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 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 operations of the other FHLBs.

 

7



 

(3)          Securities Available for Sale

 

Securities available for sale consist of the following:

 

 

 

 

 

At June 30, 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

 

$

1,861,584

 

$

94

 

$

(85,635

)

$

1,776,043

 

$

1,675,203

 

$

874

 

$

(33,921

)

$

1,642,156

 

Other

 

5,135

 

 

(183

)

4,952

 

5,655

 

 

(196

)

5,459

 

Other securities

 

1,000

 

 

 

1,000

 

1,000

 

 

 

1,000

 

Total

 

$

1,867,719

 

$

94

 

$

(85,818

)

$

1,781,995

 

$

1,681,858

 

$

874

 

$

(34,117

)

$

1,648,615

 

Weighted-average yield

 

5.35

%

 

 

 

 

 

 

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 June 30, 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 June 30, 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

 

$

1,082,066

 

$

(42,633

)

$

689,944

 

$

(43,002

)

$

1,772,010

 

$

(85,635

)

Other

 

 

 

4,406

 

(183

)

4,406

 

(183

)

Total

 

$

1,082,066

 

$

(42,633

)

$

694,350

 

$

(43,185

)

$

1,776,416

 

$

(85,818

)

 

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

 

 

 

 

 

June 30,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2006

 

2005

 

Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

First mortgage lien

 

$

3,570,097

 

$

3,375,380

 

5.8

%

Junior lien

 

1,969,217

 

1,773,308

 

11.0

 

Total consumer home equity

 

5,539,314

 

5,148,688

 

7.6

 

Other

 

40,333

 

38,896

 

3.7

 

Total consumer home equity and other

 

5,579,647

 

5,187,584

 

7.6

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

2,244,303

 

2,117,953

 

6.0

 

Construction and development

 

166,725

 

179,547

 

(7.1

)

Total commercial real estate

 

2,411,028

 

2,297,500

 

4.9

 

Commercial business

 

543,314

 

435,233

 

24.8

 

Total commercial

 

2,954,342

 

2,732,733

 

8.1

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

Equipment finance loans

 

452,102

 

387,171

 

16.8

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases (2)

 

1,304,317

 

1,180,370

 

10.5

 

Sales-type leases

 

20,918

 

18,495

 

13.1

 

Lease residuals

 

33,832

 

32,882

 

2.9

 

Unearned income and deferred lease costs

 

(133,528

)

(115,124

)

(16.0

)

Total lease financings

 

1,225,539

 

1,116,623

 

9.8

 

Total leasing and equipment finance

 

1,677,641

 

1,503,794

 

11.6

 

Total consumer, commercial and leasing and equipment finance

 

10,211,630

 

9,424,111

 

8.4

 

Residential real estate

 

695,213

 

770,441

 

(9.8

)

Total loans and leases

 

$

10,906,843

 

$

10,194,552

 

7.0

 

 

(1)

 

Operating leases of $66.8 million at June 30, 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 $63.5 million and $52.7 million at June 30, 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)          Long-term Borrowings

 

 

 

 

 

At June 30, 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

 

$

100,000

 

5.56

%

$

303,000

 

5.22

%

 

 

2007

 

200,000

 

3.65

 

200,000

 

3.65

 

 

 

2009

 

117,000

 

5.26

 

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

 

400,000

 

4.68

 

 

 

Sub-total

 

 

 

2,517,000

 

4.44

 

2,325,500

 

4.45

 

Subordinated bank notes

 

2014

 

74,458

 

5.27

 

74,373

 

5.27

 

 

 

2015

 

49,380

 

5.37

 

49,305

 

5.37

 

 

 

2016

 

74,309

 

5.63

 

 

 

Sub-total

 

 

 

198,147

 

5.43

 

123,678

 

5.31

 

Discounted lease rentals

 

2006

 

15,502

 

6.87

 

28,193

 

6.49

 

 

 

2007

 

23,804

 

7.07

 

18,323

 

6.79

 

 

 

2008

 

12,263

 

7.26

 

6,569

 

7.03

 

 

 

2009

 

4,984

 

7.22

 

1,811

 

7.02

 

 

 

2010

 

1,932

 

7.09

 

336

 

7.18

 

 

 

2011

 

245

 

6.98

 

 

 

Sub-total

 

 

 

58,730

 

7.07

 

55,232

 

6.68

 

Other borrowings

 

2006

 

 

 

2,200

 

4.50

 

 

 

2007

 

2,200

 

4.50

 

2,200

 

4.50

 

 

 

2008

 

2,200

 

4.50

 

2,200

 

4.50

 

Sub-total

 

 

 

4,400

 

4.50

 

6,600

 

4.50

 

Total long-term borrowings

 

 

 

$

2,778,277

 

4.56

 

$

2,511,010

 

4.54

 

 

Included in Federal Home Loan Bank (“FHLB”) advances and repurchase agreements at June 30, 2006 were $417 million of fixed-rate FHLB advances, which are callable quarterly by the counterparties at par until maturity. In addition, TCF has $1.6 billion of repurchase agreements and $200 million of FHLB advances which are callable during various years from 2008 through 2011. The probability that these advances and repurchase agreements will be called depends primarily on the level of related interest rates during the call period.

 

10



 

The next call year and stated maturity year for the callable advances and repurchase agreements outstanding at June 30, 2006 were as follows:

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

Next Call
Date

 

Weighted-
Average
Rate

 

Stated Maturity
Date

 

Weighted-
Average
Rate

 

 

 

 

 

 

 

 

 

 

 

2006

 

$

417,000

 

5.24

%

$

 

%

2008

 

1,100,000

 

4.11

 

 

 

2009

 

300,000

 

4.63

 

117,000

 

5.26

 

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

 

 

 

400,000

 

4.68

 

Total

 

$

2,217,000

 

4.46

 

$

2,217,000

 

4.46

 

 

(6)          Stockholders’ Equity

 

Treasury stock and other consists of the following:

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2006

 

2005

 

 

 

 

 

 

 

Treasury stock, at cost

 

$

1,005,958

 

$

945,159

 

Shares held in trust for deferred compensation plans, at cost

 

32,103

 

50,493

 

Total

 

$

1,038,061

 

$

995,652

 

 

TCF repurchased 2.9 million shares of its common stock during the first six months of 2006 and 3.1 million shares for the same 2005 period. At June 30, 2006, TCF had 3.8 million shares remaining in its stock repurchase program authorized by its Board of Directors.

 

(7)          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. With the adoption of SFAS 123R, TCF eliminated its unamortized stock compensation from Treasury Stock and Other against Additional Paid-in Capital in its Consolidated Statements of Financial Condition. 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. Unamortized stock compensation and stock compensation tax benefits were reclassified in prior periods to conform to the current period presentation.

 

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.

 

11



 

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 June 30, 2006, there were 4,125,138 shares reserved for issuance under the Program, including 239,800 shares related to outstanding stock options that are fully vested.

 

At June 30, 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 second quarter and first six months of 2006 was $25.66 and $25.23, respectively, compared with $26.11 and $27.91 for the same 2005 periods. Compensation expense for restricted stock was $1.9 million and $3.8 million for the second quarter and the first six months of 2006, respectively, compared with $1.1 million and $2.3 million for the same 2005 periods. The recognized tax benefit for stock compensation expense was $639 thousand and $1.3 million for the second quarter and the first six months of 2006, respectively, compared with $367 thousand and $755 thousand for the same 2005 periods. Unrecognized stock compensation for restricted stock awards was $25 million with a weighted-average remaining amortization period of 2.5 years at June 30, 2006, compared with $22.6 million with a weighted-average remaining amortization period of 2.1 years at June 30, 2005.

 

The following table reflects TCF’s 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

 

Granted

 

63,800

 

$ 25.66

 

Forfeited

 

(16,450

)

21.24 - 30.13

 

Vested

 

(4,000

)

19.14

 

Outstanding at June 30, 2006

 

2,627,241

 

$

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 June 30, 2006, all outstanding stock options are fully vested. Stock options outstanding and exercisable at June 30, 2006 had exercise prices ranging from $11.78 to $16.64, a weighted-average price of $13.92 and a weighted-average remaining exercise period of 2.5 years.

 

(8)          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”).

 

12



 

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 June 30, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

878,183

 

6.27

%

$

420,373

 

3.00

%

N.A.

 

N.A.

 

TCF Bank

 

839,852

 

6.00

 

419,738

 

3.00

 

$

699,563

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

878,183

 

8.58

 

409,200

 

4.00

 

613,800

 

6.00

 

TCF Bank

 

839,852

 

8.22

 

408,452

 

4.00

 

612,677

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,137,792

 

11.12

 

818,400

 

8.00

 

1,023,000

 

10.00

 

TCF Bank

 

1,099,461

 

10.77

 

816,903

 

8.00

 

1,021,129

 

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 June 30, 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.

 

(9)   Employee Benefit Plans

 

TCF amended the TCF Cash Balance Pension Plan (the “Pension Plan”) to discontinue compensation credits for all participants effective March 31, 2006. Interest credits will continue to be paid until participants’ accounts are distributed 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. The projected benefit obligation was remeasured at February 1, 2006 and was reduced from $62.1 million at December 31, 2005 to $58.5 million. As part of the remeasurement, TCF increased its discount rate assumption to 5.50% from 5.25% at December 31, 2005. The long-term rate of return on plan assets assumption was unchanged from December 31, 2005.

 

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 through nine years of service, up to a maximum company contribution of 4.5% of the employee’s salary and bonus, and to $1 per dollar for employees with ten or more years of service, up to a maximum company contribution of 6% of the employee’s salary and bonus. Employee contributions vest immediately while the Company’s matching contributions are subject to a graduated vesting schedule based on an employee’s years of vesting service with full vesting after five years.

 

13



 

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 and six months ended June 30, 2006 and 2005:

 

 

 

Pension Plan

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(In thousands)

 

2006

 

2005

 

2006

 

2005

 

Service cost

 

$

42

 

$

1,326

 

$

1,421

 

$

2,652

 

Interest cost

 

786

 

857

 

1,535

 

1,714

 

Expected return on plan assets

 

(1,253

)

(1,431

)

(2,516

)

(2,863

)

Amortization of prior service cost

 

 

(62

)

(21

)

(124

)

Recognized actuarial loss

 

585

 

262

 

1,160

 

524

 

Plan amendment/curtailment gain

 

 

 

(400

)

 

Net periodic benefit cost

 

$

160

 

$

952

 

$

1,179

 

$

1,903

 

 

 

 

Postretirement Plan

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(In thousands)

 

2006

 

2005

 

2006

 

2005

 

Service cost

 

$

6

 

$

9

 

$

13

 

$

17

 

Interest cost

 

109

 

138

 

217

 

276

 

Amortization of transition obligation

 

25

 

33

 

50

 

66

 

Recognized actuarial loss

 

30

 

35

 

60

 

70

 

Net periodic benefit cost

 

$

170

 

$

215

 

$

340

 

$

429

 

 

TCF did not make any contributions to the Pension Plan in the second quarter and first six months of 2006 and 2005. In 2006, TCF is eligible to contribute up to $8.5 million to the Pension Plan under various IRS funding methods, but is not required to make any minimum contributions. During the second quarter and first six months of 2006, TCF paid $312 thousand and $496 thousand, respectively, for the Postretirement Plan, compared with $401 thousand and $614 thousand for the same 2005 periods.

 

(10) 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 tables set 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 June 30, 2006:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

189,771

 

$

29,370

 

$

 

$

 

$

219,141

 

Non-interest income

 

108,978

 

12,552

 

2,092

 

 

123,622

 

Total

 

$

298,749

 

$

41,922

 

$

2,092

 

$

 

$

342,763

 

Net interest income

 

$

120,480

 

$

14,184

 

$

309

 

$

469

 

$

135,442

 

Provision for credit losses

 

2,306

 

791

 

 

 

3,097

 

Non-interest income

 

108,978

 

12,552

 

33,612

 

(31,520

)

123,622

 

Non-interest expense

 

144,939

 

13,243

 

34,915

 

(31,051

)

162,046

 

Income tax expense (benefit)

 

23,115

 

4,575

 

(830

)

 

26,860

 

Net income (loss)

 

$

59,098

 

$

8,127

 

$

(164

)

$

 

$

67,061

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

141,245

 

$

11,354

 

$

 

$

 

$

152,599

 

Total assets

 

$

13,758,759

 

$

1,824,821

 

$

133,484

 

$

(1,518,715

)

$

14,198,349

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended June 30, 2005:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

155,832

 

$

24,133

 

$

34

 

$

 

$

179,999

 

Non-interest income

 

106,330

 

11,092

 

216

 

 

117,638

 

Total

 

$

262,162