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Section 1: 10-Q (10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

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

of the Securities Exchange Act of 1934

 

For the quarterly period ended

September 30, 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:  (952) 745-2760

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

 

October 22, 2007

Common Stock, $.01 par value

 

126,685,369 shares

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

 

 

Part I.  Financial Information

 

Pages

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 2007 and 2006

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2007 and 2006

 

5

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the
Nine Months Ended September 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 Nine
Months Ended September 30, 2007 and 2006

 

19

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

Item 4. Controls and Procedures

 

39

 

 

 

 

 

Supplementary Information

 

41

 

 

 

 

 

Part II.  Other Information

 

 

 

 

 

 

 

Items 1- 6

 

42

 

 

 

 

 

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

 

 

 

September 30,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2007

 

2006

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

316,611

 

$

348,980

 

Investments

 

216,787

 

170,129

 

Securities available for sale

 

2,022,505

 

1,816,126

 

Education loans held for sale

 

146,353

 

144,574

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

6,386,950

 

5,945,077

 

Commercial real estate

 

2,402,949

 

2,390,653

 

Commercial business

 

577,927

 

551,995

 

Leasing and equipment finance

 

1,966,336

 

1,818,165

 

Subtotal

 

11,334,162

 

10,705,890

 

Residential real estate

 

547,552

 

627,790

 

Total loans and leases

 

11,881,714

 

11,333,680

 

Allowance for loan and lease losses

 

(74,632

)

(58,543

)

Net loans and leases

 

11,807,082

 

11,275,137

 

Premises and equipment, net

 

428,959

 

406,087

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

439,442

 

356,102

 

Total assets

 

$

15,530,338

 

$

14,669,734

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,158,150

 

$

4,348,256

 

Savings

 

2,563,851

 

2,351,580

 

Money market

 

590,567

 

585,779

 

Certificates of deposit

 

2,433,498

 

2,483,635

 

Total deposits

 

9,746,066

 

9,769,250

 

Short-term borrowings

 

167,319

 

214,112

 

Long-term borrowings

 

4,266,022

 

3,374,428

 

Total borrowings

 

4,433,341

 

3,588,540

 

Accrued expenses and other liabilities

 

307,484

 

278,570

 

Total liabilities

 

14,486,891

 

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; 131,483,460 and 131,660,749 shares issued

 

1,315

 

1,317

 

Additional paid-in capital

 

353,169

 

343,744

 

Retained earnings, subject to certain restrictions

 

894,657

 

784,011

 

Accumulated other comprehensive loss

 

(41,395

)

(34,926

)

Treasury stock at cost, 4,826,730 and 1,242,413 shares, and other

 

(164,299

)

(60,772

)

Total stockholders’ equity

 

1,043,447

 

1,033,374

 

Total liabilities and stockholders’ equity

 

$

15,530,338

 

$

14,669,734

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(In thousands, except per-share data)

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

 213,528

 

$

 199,469

 

$

 621,871

 

$

 565,440

 

Securities available for sale

 

28,439

 

24,481

 

80,209

 

73,336

 

Education loans held for sale

 

2,588

 

3,438

 

10,099

 

11,990

 

Investments

 

2,279

 

862

 

6,642

 

2,331

 

Total interest income

 

246,834

 

228,250

 

718,821

 

653,097

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

60,440

 

53,234

 

175,837

 

139,328

 

Borrowings

 

48,690

 

39,983

 

132,378

 

112,126

 

Total interest expense

 

109,130

 

93,217

 

308,215

 

251,454

 

Net interest income

 

137,704

 

135,033

 

410,606

 

401,643

 

Provision for credit losses

 

18,883

 

5,288

 

36,868

 

10,616

 

Net interest income after provision for credit losses

 

118,821

 

129,745

 

373,738

 

391,027

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

71,965

 

70,777

 

205,715

 

203,431

 

Card revenue

 

25,685

 

24,353

 

73,822

 

68,599

 

ATM revenue

 

9,251

 

9,880

 

27,314

 

28,741

 

Investments and insurance revenue

 

2,632

 

3,226

 

7,582

 

8,608

 

Subtotal

 

109,533

 

108,236

 

314,433

 

309,379

 

Leasing and equipment finance

 

15,110

 

13,372

 

44,310

 

37,839

 

Other

 

1,751

 

6,644

 

6,697

 

19,227

 

Fees and other revenue

 

126,394

 

128,252

 

365,440

 

366,445

 

Gains on sales of securities available for sale

 

2,017

 

 

2,017

 

 

Gains on sales of branches and real estate

 

1,246

 

1,260

 

35,142

 

4,188

 

Total non-interest income

 

129,657

 

129,512

 

402,599

 

370,633

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

85,113

 

84,795

 

259,913

 

256,046

 

Occupancy and equipment

 

30,226

 

28,664

 

90,006

 

84,713

 

Advertising and promotions

 

5,480

 

8,220

 

17,047

 

20,691

 

Other

 

37,632

 

36,931

 

109,478

 

111,838

 

Subtotal

 

158,451

 

158,610

 

476,444

 

473,288

 

Operating lease depreciation

 

4,326

 

3,779

 

13,067

 

10,347

 

Total non-interest expense

 

162,777

 

162,389

 

489,511

 

483,635

 

Income before income tax expense

 

85,701

 

96,868

 

286,826

 

278,025

 

Income tax expense

 

26,563

 

30,941

 

82,835

 

86,815

 

Net income

 

$

 59,138

 

$

 65,927

 

$

 203,991

 

$

 191,210

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

 .48

 

$

 .51

 

$

 1.62

 

$

 1.48

 

Diluted

 

$

 .48

 

$

 .51

 

$

 1.62

 

$

 1.48

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

 .2425

 

$

 .23

 

$

 .7275

 

$

 .69

 

See accompanying notes to consolidated financial statements.

 

4



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(In thousands)

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

203,991

 

$

191,210

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

provided (used) by operating activities:

 

 

 

 

 

Depreciation and amortization

 

47,616

 

43,913

 

Provision for credit losses

 

36,868

 

10,616

 

Proceeds from sales of education loans held for sale

 

172,120

 

266,388

 

Principal collected on education loans held for sale

 

3,571

 

16,170

 

Originations of education loans held for sale

 

(180,839

)

(192,822

)

Net increase (decrease) in other assets and

 

 

 

 

 

accrued expenses and other liabilities

 

17,701

 

(8,606

)

Gains on sales of assets and deposits, net

 

(37,159

)

(5,790

)

Other, net

 

2,908

 

(2,160

)

Total adjustments

 

62,786

 

127,709

 

Net cash provided by operating activities

 

266,777

 

318,919

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

2,516,614

 

2,649,361

 

Originations and purchases of loans

 

(2,656,024

)

(3,135,436

)

Purchases of equipment for lease financing

 

(512,013

)

(554,776

)

Proceeds from sales of securities available for sale

 

141,979

 

 

Proceeds from maturities of and principal collected on

 

 

 

 

 

securities available for sale

 

184,184

 

168,393

 

Purchases of securities available for sale

 

(594,211

)

(297,550

)

Net increase in federal funds sold

 

(9,000

)

 

Purchases of Federal Home Loan Bank stock

 

(43,387

)

(46,698

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

12,281

 

44,981

 

Proceeds from sales of real estate owned

 

26,801

 

20,041

 

Purchases of premises and equipment

 

(54,757

)

(55,361

)

Proceeds from sales of premises and equipment

 

6,951

 

6,541

 

Proceeds from sale of mortgage servicing rights

 

 

40,813

 

Other, net

 

9,969

 

10,083

 

Net cash used by investing activities

 

(970,613

)

(1,149,608

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

218,224

 

549,337

 

Sale of deposits, net

 

(213,294

)

 

Net decrease in short-term borrowings

 

(46,793

)

(95,729

)

Proceeds from long-term borrowings

 

1,116,587

 

700,012

 

Payments on long-term borrowings

 

(214,894

)

(218,849

)

Purchases of common stock

 

(102,960

)

(87,415

)

Dividends paid on common stock

 

(93,793

)

(91,291

)

Stock compensation tax benefits

 

4,537

 

20,683

 

Other, net

 

3,853

 

2,745

 

Net cash provided by financing activities

 

671,467

 

779,493

 

Net decrease in cash and due from banks

 

(32,369

)

(51,196

)

Cash and due from banks at beginning of period

 

348,980

 

374,701

 

Cash and due from banks at end of period

 

$

316,611

 

$

323,505

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

292,873

 

$

237,902

 

Income taxes

 

$

67,757

 

$

68,659

 

Transfer of loans and leases to other assets

 

$

57,992

 

$

32,707

 

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

 

 

 

 

191,210

 

 

 

191,210

 

Other comprehensive loss

 

 

 

 

 

(4,642

)

 

(4,642

)

Comprehensive income (loss)

 

 

 

 

191,210

 

(4,642

)

 

186,568

 

Dividends on common stock

 

 

 

 

(91,291

)

 

 

(91,291

)

Repurchase of 3,400,000 shares

 

 

 

 

 

 

(87,415

)

(87,415

)

Issuance of 711,490 shares

 

 

 

(13,350

)

 

 

13,350

 

 

Cancellation of shares

 

(121,185

)

(1

)

(338

)

275

 

 

 

(64

)

Cancellation of shares for tax withholding

 

(84,890

)

(1

)

(2,295

)

 

 

 

(2,296

)

Amortization of stock compensation

 

 

 

6,178

 

 

 

 

6,178

 

Exercise of stock options, 28,667 shares

 

 

 

(192

)

 

 

546

 

354

 

Stock compensation tax benefits

 

 

 

20,683

 

 

 

 

20,683

 

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

 

 

 

(17,928

)

 

 

17,928

 

 

Balance, September 30, 2006

 

184,180,118

 

$

1,842

 

$

469,642

 

$

  1,636,805

 

$

(25,857

)

$

(1,051,243

)

$

  1,031,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

203,991

 

 

 

203,991

 

Other comprehensive loss

 

 

 

 

 

(6,469

)

 

(6,469

)

Comprehensive income (loss)

 

 

 

 

203,991

 

(6,469

)

 

197,522

 

Dividends on common stock

 

 

 

 

(93,793

)

 

 

(93,793

)

Repurchase of 3,810,000 shares

 

 

 

 

 

 

(102,960

)

(102,960

)

Issuance of 168,600 shares

 

 

 

(4,065

)

 

 

4,065

 

 

Cancellation of shares

 

(127,625

)

(1

)

(494

)

448

 

 

 

(47

)

Cancellation of shares for tax withholding

 

(49,664

)

(1

)

(1,366

)

 

 

 

(1,367

)

Amortization of stock compensation

 

 

 

5,448

 

 

 

 

5,448

 

Exercise of stock options, 57,083 shares

 

 

 

(698

)

 

 

1,431

 

733

 

Stock compensation tax benefits

 

 

 

4,537

 

 

 

 

4,537

 

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

 

 

 

6,063

 

 

 

(6,063

)

 

Balance, September 30, 2007

 

131,483,460

 

$

1,315

 

$

353,169

 

$

894,657

 

$

(41,395

)

$

  (164,299

)

$

  1,043,447

 

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

 

 

 

September 30,

 

December 31,

 

(In thousands)

 

2007

 

2006

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

104,736

 

$

73,630

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

109,353

 

78,247

 

Federal Reserve Bank stock, at cost

 

20,420

 

20,023

 

Interest-bearing deposits with banks

 

7,014

 

859

 

Federal funds sold

 

80,000

 

71,000

 

Total investments

 

$

216,787

 

$

170,129

 

 

The investments in Federal Home Loan Bank (“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 financial operations of the FHLBs and actions by the Federal Housing Finance Board’s Office of Supervision.

 

7


 


 

(3)          Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At September 30, 2007

 

At December 31, 2006

 

(Dollars in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Amortized
Cost

 

Gross
Unrealized
 Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

2,064,285

 

$

197

 

$

(46,253

)

$

2,018,229

 

$

1,843,744

 

$

880

 

$

(34,046

)

$

1,810,578

 

Other

 

4,178

 

 

(152

)

4,026

 

4,719

 

 

(171

)

4,548

 

Other securities

 

250

 

 

 

250

 

1,000

 

 

 

1,000

 

Total

 

$

2,068,713

 

$

197

 

$

(46,405

)

$

2,022,505

 

$

1,849,463

 

$

880

 

$

(34,217

)

$

1,816,126

 

Weighted-average yield

 

5.46

%

 

 

 

 

 

 

5.37

 

 

 

 

 

 

 

The following tables show 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.  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 September 30, 2007.

 

 

 

At September 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

651,220

 

$

(3,479

)

$

1,226,794

 

$

(42,774

)

$

1,878,014

 

$

(46,253

)

Other

 

 

 

3,642

 

(152

)

3,642

 

(152

)

Total

 

$

651,220

 

$

(3,479

)

$

1,230,436

 

$

(42,926

)

$

1,881,656

 

$

(46,405

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and 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 tables sets forth information about loans and leases, excluding education loans held for sale.

 

(Dollars in thousands)

 

At
September 30,
2007

 

At
December 31,
2006

 

Percentage
Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

First mortgage lien

 

$

4,058,317

 

$

3,781,458

 

7.3

%

Junior lien

 

2,261,376

 

2,101,210

 

7.6

 

Total consumer home equity

 

6,319,693

 

5,882,668

 

7.4

 

Other

 

67,257

 

62,409

 

7.8

 

Total consumer home equity and other

 

6,386,950

 

5,945,077

 

7.4

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

2,173,875

 

2,201,996

 

(1.3

)

Construction and development

 

229,074

 

188,657

 

21.4

 

Total commercial real estate

 

2,402,949

 

2,390,653

 

0.5

 

Commercial business

 

577,927

 

551,995

 

4.7

 

Total commercial

 

2,980,876

 

2,942,648

 

1.3

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

Equipment finance loans

 

569,382

 

492,062

 

15.7

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

1,497,571

 

1,423,226

 

5.2

 

Sales-type leases

 

27,818

 

22,694

 

22.6

 

Lease residuals

 

38,904

 

34,671

 

12.2

 

Unearned income and deferred lease costs

 

(167,339

)

(154,488

)

(8.3

)

Total lease financings

 

1,396,954

 

1,326,103

 

5.3

 

Total leasing and equipment finance

 

1,966,336

 

1,818,165

 

8.1

 

Total consumer, commercial and leasing and equipment finance

 

11,334,162

 

10,705,890

 

5.9

 

Residential real estate

 

547,552

 

627,790

 

(12.8

)

Total loans and leases

 

$

11,881,714

 

$

11,333,680

 

4.8

 

(1)

 

Operating leases of $70.1 million at September 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 September 30, 2007

 

At December 31, 2006

 

(Dollars in thousands)

 

Year of Maturity

 

Amount

 

Weighted-
Average
Rate

 

Amount

 

Weighted-
Average
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

 

1,100,000

 

4.68

 

 

 

 

 

Sub-total

 

 

 

4,017,000

 

4.50

 

 

3,117,000

 

4.58

 

 

Subordinated bank notes

 

2014

 

74,680

 

5.27

 

 

74,545

 

5.27

 

 

 

 

2015

 

49,577

 

5.37

 

 

49,458

 

5.37

 

 

 

 

2016

 

74,380

 

5.63

 

 

74,337

 

5.63

 

 

Sub-total

 

 

 

198,637

 

5.43

 

 

198,340

 

5.43

 

 

Discounted lease rentals

 

2007

 

7,313

 

7.33

 

 

27,566

 

7.13

 

 

 

 

2008

 

21,832

 

7.34

 

 

16,000

 

7.30

 

 

 

 

2009

 

12,533

 

7.33

 

 

7,390

 

7.27

 

 

 

 

2010

 

4,551

 

7.24

 

 

2,287

 

7.16

 

 

 

 

2011

 

920

 

7.21

 

 

431

 

7.25

 

 

 

 

2012

 

37

 

7.02

 

 

 

 

 

Sub-total

 

 

 

47,186

 

7.32

 

 

53,674

 

7.20

 

 

Other borrowings

 

2007

 

7

 

5.00

 

 

2,222

 

4.50

 

 

 

 

2008

 

2,226

 

4.51

 

 

2,226

 

4.51

 

 

 

 

2009

 

966

 

5.00

 

 

966

 

5.00

 

 

Sub-total

 

 

 

3,199

 

4.66

 

 

5,414

 

4.59

 

 

Total long-term borrowings

 

 

 

$

4,266,022

 

4.58

 

 

$

3,374,428

 

4.49

 

 

 

Included in FHLB advances and repurchase agreements at September 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 $1.8 billion of repurchase agreements and $1.8 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 September 30, 2007 were as follows.

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

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

 

1,300,000

 

4.63

 

 

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

 

 

 

 

1,100,000

 

4.68

 

 

Total

 

$

4,017,000

 

4.50

 

 

$

4,017,000

 

4.50

 

 

 

10



 

(6)          Stockholders’ Equity

 

Treasury stock and other consists of the following.

 

(In thousands)

 

At
September 30,
2007

 

At
December 31,
2006

 

Treasury stock, at cost

 

$

(125,291

)

$

(27,827

)

Shares held in trust for deferred compensation plans, at cost

 

(39,008

)

(32,945

)

Total

 

$

(164,299

)

$

(60,772

)

 

(7)          Stock Compensation

 

At September 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 third quarter and first nine months of 2007 was $27.91 and $27.03, respectively, compared with $25.69 and $25.25 for the same 2006 periods. Compensation expense for restricted stock was $1.4 million and $5 million for the third quarter and first nine months of 2007, respectively, compared with $2 million and $5.8 million for the same 2006 periods.  The recognized tax benefit for stock compensation expense was $464 thousand and $1.7 million for the third quarter and first nine months of 2007, respectively, compared with $662 thousand and $1.9 million for the same 2006 periods.  Unrecognized stock compensation for restricted stock awards was $15.3 million with a weighted-average remaining amortization period of 1.5 years at September 30, 2007.

 

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

 

 

 

Restricted Stock

 

 

 

Shares

 

Price Range

 

Outstanding at December 31, 2006

 

2,619,341

 

$9.87 - $30.28

 

Granted

 

168,600

 

$24.26 - $28.64

 

Forfeited

 

(127,625

)

$9.87 - $30.13

 

Vested

 

(147,700

)

$20.38 - $26.39

 

Outstanding at September 30, 2007

 

2,512,616

 

$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.

 

 

 

Actual

 

Minimum

Capital Requierment

 

Well-Capitalized
Capital Requirement

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of September 30, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

931,920

 

6.12

%

 

$

456,561

 

3.00

%

  

N.A.

 

N.A.

 

 

TCF National Bank

 

884,149

 

5.82

 

 

455,498

 

3.00

 

 

$

759,163

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

931,920

 

8.34

 

 

446,938

 

4.00

 

 

670,496

 

6.00

 

 

TCF National Bank

 

884,149

 

7.93

 

 

446,113

 

4.00

 

 

669,170

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,207,061

 

10.80

 

 

893,995

 

8.00

 

 

1,117,494

 

10.00

 

 

TCF National Bank

 

1,159,288

 

10.39

 

 

892,226

 

8.00

 

 

1,115,283

 

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 September 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 nine months ended September 30, 2007 and 2006.

 

 

 

 

Pension Plan

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(In thousands)

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

 

$

 

$

 

$

1,421

 

Interest cost

 

732

 

787

 

2,197

 

2,322

 

Expected return on plan assets

 

(1,234

)

(1,254

)

(3,703

)

(3,770

)

Amortization of prior service cost

 

 

 

 

(21

)

Recognized actuarial loss

 

937

 

1,471

 

2,636

 

2,631

 

Plan amendment/curtailment gain

 

 

 

 

(400

)

Net periodic benefit cost

 

$

435

 

$

1,004

 

$

1,130

 

$

2,183

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement Plan

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(In thousands)

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

5

 

$

6

 

$

13

 

$

19

 

Interest cost

 

122

 

108

 

368

 

325

 

Amortization of transition obligation

 

25

 

26

 

76

 

76

 

Recognized actuarial loss

 

56

 

30

 

167

 

90

 

Net periodic benefit cost

 

$

208

 

$

170

 

$

624

 

$

510

 

 

During the third quarter and first nine months of 2007, TCF made no contributions to the Pension Plan compared with $4 million in contributions during the same 2006 periods.  TCF is not required, and does not anticipate making, any contributions to the Pension Plan during 2007.  During the third quarter and first nine months of 2007, TCF paid $255 thousand and $880 thousand, respectively, for benefits of the Postretirement Plan, compared with $284 thousand and $780 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.

 

 

(In thousands)

 

Banking

 

Leasing and
Equipment
Finance

 

Other

 

Eliminations
and
Reclassifications

 

Consolidated

 

At or For the Three Months Ended September 30, 2007:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

208,860

 

$

37,974

 

$

 

$

 

$

246,834

 

Non-interest income

 

114,351

 

15,110

 

196

 

 

129,657

 

Total

 

$

323,211

 

$

53,084

 

$

196

 

$

 

$

376,491

 

Net interest income

 

$

120,993

 

$

16,890

 

$

(179

)

$

 

$

137,704

 

Provision for credit losses

 

17,123

 

1,760

 

 

 

18,883

 

Non-interest income

 

114,351