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Section 1: 10-Q (10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

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

of the Securities Exchange Act of 1934

 

For the quarterly period ended

June 30, 2007

 

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 19, 2007

Common Stock, $.01 par value

 

126,954,280 shares

 

 


 


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

Part I.  Financial Information

 

Pages

 

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition
at June 30, 2007 and December 31, 2006

 

3

 

 

 

 

 

Consolidated Statements of Income for the Three
and Six Months Ended June 30, 2007 and 2006

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2007 and 2006

 

5

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the
Six Months Ended June 30, 2007 and 2006

 

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, 2007 and 2006

 

19

 

 

 

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

Item 4.  Controls and Procedures

 

38

 

 

 

 

 

Supplementary Information

 

40

 

 

 

 

 

Part II.  Other Information

 

 

 

 

 

 

 

Items 1- 6

 

41

 

 

 

 

 

Signatures

 

43

 

 

 

 

 

Index to Exhibits

 

44

 

 

 

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)

 

2007

 

2006

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

324,406

 

$

348,980

 

Investments

 

110,811

 

170,129

 

Securities available for sale

 

1,943,450

 

1,816,126

 

Education loans held for sale

 

111,377

 

144,574

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

6,201,067

 

5,945,077

 

Commercial real estate

 

2,354,805

 

2,390,653

 

Commercial business

 

569,105

 

551,995

 

Leasing and equipment finance

 

1,913,628

 

1,818,165

 

Subtotal

 

11,038,605

 

10,705,890

 

Residential real estate

 

572,619

 

627,790

 

Total loans and leases

 

11,611,224

 

11,333,680

 

Allowance for loan and lease losses

 

(66,809

)

(58,543

)

Net loans and leases

 

11,544,415

 

11,275,137

 

Premises and equipment, net

 

423,048

 

406,087

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

367,598

 

356,102

 

Total assets

 

$

14,977,704

 

$

14,669,734

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,268,723

 

$

4,348,256

 

Savings

 

2,446,942

 

2,351,580

 

Money market

 

615,940

 

585,779

 

Certificates of deposit

 

2,511,090

 

2,483,635

 

Total deposits

 

9,842,695

 

9,769,250

 

Short-term borrowings

 

285,828

 

214,112

 

Long-term borrowings

 

3,568,997

 

3,374,428

 

Total borrowings

 

3,854,825

 

3,588,540

 

Accrued expenses and other liabilities

 

279,152

 

278,570

 

Total liabilities

 

13,976,672

 

13,636,360

 

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; 131,500,734 and 131,660,749 shares issued

 

1,315

 

1,317

 

Additional paid-in capital

 

352,674

 

343,744

 

Retained earnings, subject to certain restrictions

 

866,104

 

784,011

 

Accumulated other comprehensive loss

 

(62,631

)

(34,926

)

Treasury stock at cost, 4,545,780 and 1,242,413 shares, and other

 

(156,430

)

(60,772

)

Total stockholders’ equity

 

1,001,032

 

1,033,374

 

Total liabilities and stockholders’ equity

 

$

14,977,704

 

$

14,669,734

 

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)

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

206,738

 

$

188,988

 

$

408,343

 

$

365,971

 

Securities available for sale

 

26,665

 

25,156

 

51,770

 

48,855

 

Education loans held for sale

 

3,365

 

4,205

 

7,511

 

8,552

 

Investments

 

1,557

 

792

 

4,363

 

1,469

 

Total interest income

 

238,325

 

219,141

 

471,987

 

424,847

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

58,242

 

46,247

 

115,397

 

86,094

 

Borrowings

 

42,658

 

37,452

 

83,688

 

72,143

 

Total interest expense

 

100,900

 

83,699

 

199,085

 

158,237

 

Net interest income

 

137,425

 

135,442

 

272,902

 

266,610

 

Provision for credit losses

 

13,329

 

4,177

 

17,985

 

5,328

 

Net interest income after provision for credit losses

 

124,096

 

131,265

 

254,917

 

261,282

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

71,728

 

71,099

 

133,750

 

132,654

 

Card revenue

 

24,876

 

22,984

 

48,137

 

44,246

 

ATM revenue

 

9,314

 

9,762

 

18,063

 

18,861

 

Investments and insurance revenue

 

2,772

 

2,894

 

4,950

 

5,382

 

Subtotal

 

108,690

 

106,739

 

204,900

 

201,143

 

Leasing and equipment finance

 

15,199

 

12,552

 

29,200

 

24,467

 

Other

 

2,993

 

4,331

 

4,946

 

12,583

 

Fees and other revenue

 

126,882

 

123,622

 

239,046

 

238,193

 

Gains on sales of branches and real estate

 

2,723

 

 

33,896

 

2,928

 

Total non-interest income

 

129,605

 

123,622

 

272,942

 

241,121

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

86,707

 

85,083

 

174,800

 

171,251

 

Occupancy and equipment

 

29,329

 

27,998

 

59,780

 

56,049

 

Advertising and promotions

 

5,586

 

6,755

 

11,567

 

12,471

 

Other

 

36,531

 

37,725

 

71,846

 

74,907

 

Subtotal

 

158,153

 

157,561

 

317,993

 

314,678

 

Operating lease depreciation

 

4,381

 

3,405

 

8,741

 

6,568

 

Total non-interest expense

 

162,534

 

160,966

 

326,734

 

321,246

 

Income before income tax expense

 

91,167

 

93,921

 

201,125

 

181,157

 

Income tax expense

 

29,038

 

26,860

 

56,272

 

55,874

 

Net income

 

$

62,129

 

$

67,061

 

$

144,853

 

$

125,283

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.49

 

$

.52

 

$

1.14

 

$

.97

 

Diluted

 

$

.49

 

$

.52

 

$

1.14

 

$

.96

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.2425

 

$

.23

 

$

.4850

 

$

.46

 

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)

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

144,853

 

$

125,283

 

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

 

 

 

 

 

Depreciation and amortization

 

31,994

 

28,732

 

Provision for credit losses

 

17,985

 

5,328

 

Proceeds from sales of education loans held for sale

 

134,361

 

112,294

 

Principal collected on education loans held for sale

 

2,961

 

7,371

 

Originations of education loans held for sale

 

(107,035

)

(117,578

)

Net increase in other assets and accrued expenses and other liabilities

 

19,262

 

6,399

 

Gains on sales of assets, net

 

(33,896

)

(4,530

)

Other, net

 

1,720

 

(1,411

)

Total adjustments

 

67,352

 

36,605

 

Net cash provided by operating activities

 

212,205

 

161,888

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

1,774,926

 

1,728,091

 

Originations and purchases of loans

 

(1,762,423

)

(2,127,697

)

Purchases of equipment for lease financing

 

(335,012

)

(378,023

)

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

 

128,910

 

111,176

 

Purchases of securities available for sale

 

(301,385

)

(297,451

)

Net decrease of federal funds sold

 

71,000

 

 

Purchases of Federal Home Loan Bank stock

 

(21,137

)

(31,123

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

8,926

 

38,266

 

Proceeds from sales of real estate owned

 

16,325

 

11,874

 

Purchases of premises and equipment

 

(38,626

)

(37,168

)

Proceeds from sales of premises and equipment

 

10,539

 

4,274

 

Proceeds from sale of mortgage servicing rights

 

 

37,731

 

Other, net

 

9,358

 

3,485

 

Net cash used by investing activities

 

(438,599

)

(936,565

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

314,853

 

514,245

 

Sale of deposits

 

(213,294

)

 

Net increase in short-term borrowings

 

71,716

 

89,248

 

Proceeds from long-term borrowings

 

387,768

 

494,136

 

Payments on long-term borrowings

 

(210,504

)

(216,090

)

Purchases of common stock

 

(94,221

)

(73,864

)

Dividends paid on common stock

 

(62,992

)

(61,090

)

Stock compensation tax benefits

 

4,519

 

20,714

 

Other, net

 

3,975

 

4,619

 

Net cash provided by financing activities

 

201,820

 

771,918

 

Net decrease in cash and due from banks

 

(24,574

)

(2,759

)

Cash and due from banks at beginning of period

 

348,980

 

374,701

 

Cash and due from banks at end of period

 

$

324,406

 

$

371,942

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

189,752

 

$

147,830

 

Income taxes

 

$

40,680

 

$

24,718

 

Transfer of loans and leases to other assets

 

$

44,758

 

$

21,435

 

See accompanying notes to consolidated financial statements.

 

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

(Dollars in thousands)

 

Shares Issued

 

Stock

 

Capital

 

Earnings

 

Loss

 

and Other

 

Total

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006

 

131,660,749

 

$

1,317

 

$

343,744

 

$

784,011

 

$

(34,926

)

$

(60,772

)

$

1,033,374

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

144,853

 

 

 

144,853

 

Other comprehensive loss

 

 

 

 

 

(27,705

)

 

(27,705

)

Comprehensive income (loss)

 

 

 

 

144,853

 

(27,705

)

 

117,148

 

Dividends on common stock

 

 

 

 

(62,992

)

 

 

(62,992

)

Repurchase of 3,460,000 shares

 

 

 

 

 

 

(94,221

)

(94,221

)

Issuance of 99,500 shares

 

 

 

(2,268

)

 

 

2,268

 

 

Cancellation of shares

 

(111,025

)

(1

)

(339

)

232

 

 

 

(108

)

Cancellation of shares for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

tax withholding

 

(48,990

)

(1

)

(1,347

)

 

 

 

(1,348

)

Amortization of stock compensation

 

 

 

3,928

 

 

 

 

3,928

 

Exercise of stock options, 57,083 shares

 

 

 

(698

)

 

 

1,430

 

732

 

Stock compensation tax benefits

 

 

 

4,519

 

 

 

 

4,519

 

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

 

 

 

5,135

 

 

 

(5,135

)

 

Balance, June 30, 2007

 

131,500,734

 

$

1,315

 

$

352,674

 

$

866,104

 

$

(62,631

)

$

(156,430

)

$

1,001,032

 

See accompanying notes to consolidated financial statements.

 

6


 


TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)          Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and notes necessary for complete financial statements in conformity with generally accepted accounting principles.  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, 2006 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, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  These estimates are based on information available to management at the time the estimates are made.  Actual results could differ from those estimates.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring items, considered necessary for 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)

 

2007

 

2006

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

85,841

 

$

73,630

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

90,458

 

78,247

 

Federal Reserve Bank stock, at cost

 

20,337

 

20,023

 

Interest-bearing deposits with banks

 

16

 

859

 

Federal funds sold

 

 

71,000

 

Total investments

 

$

110,811

 

$

170,129

 

 

The investments in FHLB stock are required investments related to TCF’s borrowings from these banks.  All new FHLB borrowing activity since 2000 is conducted through 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, 2007

 

At December 31, 2006

 

 

 

 

 

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

 

$

 2,016,826

 

$

 54

 

$

 (77,877

)

$

 1,939,003

 

$

 1,843,744

 

$

 880

 

$

 (34,046

)

$

 1,810,578

 

Other

 

4,355

 

 

(158

)

4,197

 

4,719

 

 

(171

)

4,548

 

Other securities

 

250

 

 

 

250

 

1,000

 

 

 

1,000

 

Total

 

$

 2,021,431

 

$

 54

 

$

 (78,035

)

$

 1,943,450

 

$

 1,849,463

 

$

 880

 

$

 (34,217

)

$

 1,816,126

 

Weighted-average yield

 

5.44

%

 

 

 

 

 

 

5.37

%

 

 

 

 

 

 

 

The following table shows the securities available for sale portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2007.  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 securities until a recovery of fair value.  Accordingly, TCF has concluded that no other than temporary impairment has occurred at June 30, 2007.

 

 

 

At June 30, 2007

 

 

 

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

 

$

698,359

 

$

(12,082

)

$

1,237,815

 

$

(65,795

)

$

1,936,174

 

$

(77,877

)

Other

 

 

 

3,794

 

(158

)

3,794

 

(158

)

Total

 

$

698,359

 

$

(12,082

)

$

1,241,609

 

$

(65,953

)

$

1,939,968

 

$

(78,035

)

 

 

 

At December 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

 

$

270,636

 

$

(570

)

$

1,271,984

 

$

(33,476

)

$

1,542,620

 

$

(34,046

)

Other

 

 

 

4,101

 

(171

)

4,101

 

(171

)

Total

 

$

270,636

 

$

(570

)

$

1,276,085

 

$

(33,647

)

$

1,546,721

 

$

(34,217

)

 

8



 

 

(4)          Loans and Leases

 

The following table sets forth information about loans and leases, excluding education loans held for sale.

 

 

 

At

 

At

 

 

 

 

 

June 30,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2007

 

2006

 

Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

First mortgage lien

 

$

3,957,922

 

$

3,781,458

 

 

4.7

%

 

Junior lien

 

2,178,060

 

2,101,210

 

 

3.7

 

 

Total consumer home equity

 

6,135,982

 

5,882,668

 

 

4.3

 

 

Other

 

65,085

 

62,409

 

 

4.3

 

 

Total consumer home equity and other

 

6,201,067

 

5,945,077

 

 

4.3

 

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Permanent

 

2,149,043

 

2,201,996

 

 

(2.4

)

 

Construction and development

 

205,762

 

188,657

 

 

9.1

 

 

Total commercial real estate

 

2,354,805

 

2,390,653

 

 

(1.5

)

 

Commercial business

 

569,105

 

551,995

 

 

3.1

 

 

Total commercial

 

2,923,910

 

2,942,648

 

 

(0.6

)

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

 

 

Equipment finance loans

 

546,040

 

492,062

 

 

11.0

 

 

Lease financings:

 

 

 

 

 

 

 

 

 

Direct financing leases

 

1,464,904

 

1,423,226

 

 

2.9

 

 

Sales-type leases

 

28,305

 

22,694

 

 

24.7

 

 

Lease residuals

 

36,543

 

34,671

 

 

5.4

 

 

Unearned income and deferred lease costs

 

(162,164

)

(154,488

)

 

(5.0

)

 

Total lease financings

 

1,367,588

 

1,326,103

 

 

3.1

 

 

Total leasing and equipment finance

 

1,913,628

 

1,818,165

 

 

5.3

 

 

Total consumer, commercial and leasing and equipment finance

 

11,038,605

 

10,705,890

 

 

3.1

 

 

Residential real estate

 

572,619

 

627,790

 

 

(8.8

)

 

Total loans and leases

 

$

11,611,224

 

$

11,333,680

 

 

2.4

 

 

(1)          Operating leases of $73.2 million at June 30, 2007 and $80.4 million at December 31, 2006 are included in Other Assets on the Consolidated Statements of Financial Condition.

 

9



 

 

(5)          Long-term Borrowings

 

The following table sets forth information about long-term borrowings.

 

 

 

 

 

At June 30, 2007

 

At December 31, 2006

 

 

 

 

 

 

 

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

 

2007

 

$

 

%

$

200,000

 

3.65

%

 

 

2009

 

117,000

 

5.26

 

117,000

 

5.26

 

 

 

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

 

1,100,000

 

4.49

 

1,100,000

 

4.49

 

 

 

2017

 

400,000

 

4.50

 

 

 

Sub-total

 

 

 

3,317,000

 

4.44

 

3,117,000

 

4.58

 

Subordinated bank notes

 

2014

 

74,634

 

5.27

 

74,545

 

5.27

 

 

 

2015

 

49,537

 

5.37

 

49,458

 

5.37

 

 

 

2016

 

74,366

 

5.63

 

74,337

 

5.63

 

Sub-total

 

 

 

198,537

 

5.43

 

198,340

 

5.43

 

Discounted lease rentals

 

2007

 

14,696

 

7.28

 

27,566

 

7.13

 

 

 

2008

 

20,514

 

7.37

 

16,000

 

7.30

 

 

 

2009

 

11,118

 

7.37

 

7,390

 

7.27

 

 

 

2010

 

3,483

 

7.27

 

2,287

 

7.16

 

 

 

2011

 

444

 

7.26

 

431

 

7.25

 

Sub-total

 

 

 

50,255

 

7.34

 

53,674

 

7.20

 

Other borrowings

 

2007

 

13

 

5.00

 

2,222

 

4.50

 

 

 

2008

 

2,226

 

4.51

 

2,226

 

4.51

 

 

 

2009

 

966

 

5.00

 

966

 

5.00

 

Sub-total

 

 

 

3,205

 

4.66

 

5,414

 

4.59

 

Total long-term borrowings

 

 

 

$

3,568,997

 

4.54

 

$

3,374,428

 

4.49

 

 

Included in Federal Home Loan Bank (“FHLB”) advances and repurchase agreements at June 30, 2007 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 $1.3 billion 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 at the various call dates. If the FHLB advances are called, replacement funding will be provided by the FHLB at the then-prevailing market rate of interest for the term selected by TCF, subject to standard terms and conditions.

 

The next call date and stated maturity for the callable FHLB advances and repurchase agreements outstanding at June 30, 2007 were as follows.

 

Year

 

Next Call
Date

 

Weighted-
Average Rate

 

Stated
Maturity
Date

 

Weighted-
Average Rate

 

 

 

 

 

 

 

 

 

 

 

2007

 

$

417,000

 

5.24

%

$

 

%

2008

 

1,200,000

 

4.13

 

 

 

2009

 

1,000,000

 

4.45

 

117,000

 

5.26

 

2010

 

600,000

 

4.34

 

100,000

 

6.02

 

2011

 

100,000

 

4.82

 

200,000

 

4.85

 

2015

 

 

 

1,400,000

 

4.16

 

2016

 

 

 

1,100,000

 

4.49

 

2017

 

 

 

400,000

 

4.50

 

Total

 

$

3,317,000

 

4.44

 

$

3,317,000

 

4.44

 

 

10



 

(6)          Stockholders’ Equity

Treasury stock and other consists of the following.

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2007

 

2006

 

 

 

 

 

 

 

Treasury stock, at cost

 

$

(118,350

)

$

(27,827

)

Shares held in trust for deferred compensation plans, at cost

 

(38,080

)

(32,945

)

Total

 

$

(156,430

)

$

(60,772

)

 

(7)          Stock Compensation

 

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, 2007, there were 4,037,363 shares reserved for issuance under the Program, including 174,050 shares related to outstanding stock options, all of which are fully vested.

 

At June 30, 2007, there were 1,455,166 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 2007 was $25.98 and $26.43, respectively, compared with $25.66 and $25.23 for the same 2006 periods. Compensation expense for restricted stock was $1.8 million and $3.6 million for the second quarter and first six months of 2007, respectively, compared with $1.9 million and $3.8 million for the same 2006 periods.  The recognized tax benefit for stock compensation expense was $605 thousand and $1.2 million for the second quarter and first six months of 2007, respectively, compared with $639 thousand and $1.3 million for the same 2006 periods.  Unrecognized stock compensation for restricted stock awards was $16.7 million with a weighted-average remaining amortization period of 1.8 years at June 30, 2007, compared with $25 million with a weighted-average remaining amortization period of 2.5 years at June 30, 2006.

 

The following table reflects TCF’s restricted stock transactions under the Program since December 31, 2006.

 

 

 

Restricted Stock

 

 

 

Shares

 

Price Range

 

Outstanding at December 31, 2006

 

2,619,341

 

$9.87 - $30.28

 

Granted

 

99,550

 

25.74 - 28.64

 

Forfeited

 

(111,025

)

9.87 - 28.71

 

Vested

 

(145,900

)

20.38 - 26.39

 

Outstanding at June 30, 2007

 

2,461,966

 

$9.87 - $30.28

 

 

(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 retained profits for the current year combined with its net retained profits for the preceding two calendar years without prior approval of the Office of the Comptroller of the Currency (“OCC”).

 

11



 

The following table sets forth TCF’s and TCF National 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, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

910,574

 

6.14

%

$

445,031

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

856,981

 

5.79

 

444,015

 

3.00

 

$

740,024

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

910,574

 

8.40

 

433,714

 

4.00

 

650,570

 

6.00

 

TCF National Bank

 

856,981

 

7.92

 

432,906

 

4.00

 

649,358

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,177,748

 

10.86

 

867,427

 

8.00

 

1,084,284

 

10.00

 

TCF National Bank

 

1,124,154

 

10.39

 

865,813

 

8.00

 

1,082,266

 

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

914,128

 

6.33

%

$

432,993

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

821,273

 

5.70

 

432,374

 

3.00

 

$

720,623

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

914,128

 

8.65

 

422,678

 

4.00

 

634,016

 

6.00

 

TCF National Bank

 

821,273

 

7.79

 

421,941

 

4.00

 

632,911

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,173,073

 

11.10

 

845,355

 

8.00

 

1,056,694

 

10.00

 

TCF National Bank

 

1,080,218

 

10.24

 

843,881

 

8.00

 

1,054,851

 

10.00

 

N.A. Not Applicable.

 

At June 30, 2007, TCF, TCF National Bank and TCF National Bank Arizona 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.

 

12



 

(9)   Employee Benefit Plans

 

The following tables set forth the net periodic 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, 2007 and 2006.

 

 

 

Pension Plan

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(In thousands)

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

 

$

42

 

$

 

$

1,421

 

Interest cost

 

733

 

786

 

1,465

 

1,535

 

Expected return on plan assets

 

(1,235

)

(1,253

)

(2,469

)

(2,516

)

Amortization of prior service cost

 

 

 

 

(21

)

Amortization of net actuarial loss

 

850

 

585

 

1,699

 

1,160

 

Plan amendment/curtailment gain

 

 

 

 

(400

)

Net periodic benefit cost

 

$

348

 

$

160

 

$

695

 

$

1,179

 

 

 

 

Postretirement Plan

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(In thousands)

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

4

 

$

6

 

$

8

 

$

13

 

Interest cost

 

123

 

109

 

246

 

217

 

Amortization of transition obligation

 

26

 

25

 

51

 

50

 

Recognized actuarial loss

 

55

 

30

 

111

 

60

 

Net periodic benefit cost

 

$

208

 

$

170

 

$

416

 

$

340

 

 

During the second quarters and first six months of 2007 and 2006, TCF made no contributions to the Pension Plan.  TCF is not required, and does not anticipate making, any contributions to the Pension Plan during 2007.  During the second quarter and first six months of 2007, TCF paid $300 thousand and $625 thousand, respectively, for benefits of the Postretirement Plan, compared with $312 thousand and $496 thousand for the same 2006 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 operations are 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 in the most recent Annual Report on Form 10-K.  TCF generally accounts for inter-segment sales and transfers at cost.

 

13



 

The following tables set forth certain information for TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals.  The “other” category in the tables 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, 2007:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

202,256

 

$

36,069

 

$

 

$

 

$

238,325

 

Non-interest income

 

114,216

 

15,199

 

190

 

 

129,605

 

Total

 

$

316,472

 

$

51,268

 

$

190

 

$

 

$

367,930

 

Net interest income

 

$

121,715

 

$

15,892

 

$

(182

)

$

 

$

137,425

 

Provision for credit losses

 

11,155

 

2,174

 

 

 

13,329